Search, Transport Costs, and Labor Markets in South Africa

Kishan Shah and Federico Sturzenegger
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Kishan Shah: Center for International Development at Harvard University

No 195, Growth Lab Working Papers from Harvard's Growth Lab

Abstract: South Africa’s labor market exhibits a unique equilibrium with one of the highest unemployment rates in the world and yet a low level of informal employment. The unemployment rate has remained high and persistent over recent decades, in spite of the formal demise of the apartheid regime and subsequent transition to democracy in 1994. This paper uses a matching model of the labor market to argue that spatial considerations combined with low productivity of informal work may be responsible for such an outcome. Spatial dispersion inherited from the apartheid regime thins the labor market, creating exclusion and perpetuating spatial segregation. In most developing countries, the result would be higher employment in informal or own account employment. However, with low productivity in the informal sector, the high rate of exclusion shows itself in higher unemployment rates instead. Transportation costs and housing deregulation may become key factors in improving the working of the labor market in South Africa especially if it is not possible to raise informal productivity.

Keywords: South Africa; labor markets (search for similar items in EconPapers)
Date: 2023-01
New Economics Papers: this item is included in nep-iue and nep-ure
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