Coordination Failure and Employment in South Africa

David Fryer and Desire Vencatachellum ()
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David Fryer: Department of Economics and Economics IIistory, Rhodes University
Desire Vencatachellum: HEC Montreal, Universite de Montreal

Journal of African Development, 2004, vol. 6, issue 1, 22-51

Abstract: South Africa simultaneously lost more than 890, 000 jobs, and saw an increase in the number of skilled workers, from 1989 to 1999. We argue this is the consequence of 'well-documented acute apartheid-era distortions which led to a current coordination failure where (i) firms are locked into a mostly skill-intensive technology where they have very little demand for semi-skilled and unskilled labor, and (ii) there are too few semiskilled and skilled blacks. It follows that the average leUel of blacks' human capital is too low for jinns to adopt a technology which makes intensiUe use of less skilled workers in the production process. A Jirm cannot unilaterally change technology because current skilled (mostly white) workers would lose and moUe to other Jinns. All this points to a missing market for semi-skilled workers. Wealth redistribution, public imestments in both the quantity and quality of education are shown to be Pareto-improving.

Date: 2004
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