The Determinants of Earnings Inequalities: Panel data evidence from South Africa

Andrew Kerr and Francis Teal

No 2012-04, CSAE Working Paper Series from Centre for the Study of African Economies, University of Oxford

Abstract: In this paper we analyse the relative importance of individual ability and labour market institutions, including public sector wage setting and trade unions, in determining earnings differences across different types of employment. To do this we use the KwaZulu-Natal Income Dynamics Study data from South Africa, which show extremely large average earnings differentials across different types of employment. Our results suggest that human capital and individual ability explain much of the earnings differentials within the private sector, including the union premium, but cannot explain the large premiums for public sector workers. We show that a public sector premium exists only for those moving into the public sector. The paper addresses the challenges of non-random attrition and measurement error bias that panel data bring. Our results show that emphasising a simple binary dichotomy between the formal and informal sector can be unhelpful in attempting to explore how the labour market functions.

Keywords: Formality; Trade unions; Public sector; Earnings; South Africa (search for similar items in EconPapers)
JEL-codes: J31 J45 J51 O12 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-afr, nep-iue, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: The Determinants of Earnings Inequalities: Panel Data Evidence from South Africa (2012)
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