Macroeconomic Determinants of South Africa's Post-Apartheid Income Distribution

Adam Aboobaker
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Adam Aboobaker: UMass Amherst - University of Massachusetts [Amherst] - UMASS - University of Massachusetts System, WITS - University of the Witwatersrand [Johannesburg]

World Inequality Lab Working Papers from HAL

Abstract: South Africa's distributive regime is striking to all who observe it. This paper situates developments in post-apartheid income distribution within key macroeconomic developments and debates, arguing that deterioration in the wage share between 2000 and 2008 is better explained by factors associated with the commodity boom, rather than those associated with neoliberalism, such as austere fiscal policy, trade openness, or 'financialization.' The distribution of market income has undergone developments at the sector level post-apartheid that have received little attention. While the aggregate wage share remains close to its initial level at the start of democracy, the wage share in mining is 12 percentage points lower than at the beginning of 1993, after recovering somewhat from a nearly 20 percentage point decline over the commodity boom period. The ratio of consumer prices to sector level producer prices is the 'wedge' between real consumption and real product wage rates and in theory a key relative price determining distributive outcomes. In sectors like mining, where real product and real consumption wage rates may depart in significant part, workers may not easily observe the real product wage and nominal productivity shocks may weakly carry through to wages. Other sectors have different dynamics. The wage share in manufacturing has stabilized at a level nearly 20 percentage points higher than where it was in 2005 and in utilities the wage share resembles a mountain with a steep climb during the first fifteen years of democracy and a sharp cliff edge around the Great Recession. This paper reviews existing debates about macroeconomic policy and performance, reflecting on how they relate to the evolving wage share before considering evidence from autoregressive distributed-lag and error correction models. The concluding analysis calls for reorienting the focus of predominant critique of post-apartheid macro policy from insufficient state allocation of resources toward social policy to a critique concerning the state's failure to mobilize the necessary resources to drive forth rapid structural transformation.

Date: 2022-05
New Economics Papers: this item is included in nep-dev and nep-pke
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