Do Unions Matter? Trade Reform and Manufacturing Wages in South Africa

Riham Shendy

No ECO2007/50, Economics Working Papers from European University Institute

Abstract: The effect of nominal tariff cuts on industry wage differentials has been the subject of a number of recent empirical studies. In this paper we investigate the latter relationship with respect to the South African trade reform experience using labor force data for the period from 1995 to 2004. Our study extends on the existing literature in two respects: firstly, we control for the potential effect of labor market institutions, such as collective bargaining power, in assessing the relationship between tariffs and industry wages. Secondly, we account for general equilibrium effects by controlling for the impact of changes in effective tariffs rates. We find that on the one hand, only wages in industries with levels of unionization beyond a certain threshold were adversely affected by tariff cuts. This negative effect is exacerbated by the extent of sectoral union power. The reported large magnitudes of the tariff impact on wages is in line with the considerably high markups documented for South Africa. On the other hand we find some evidence suggesting that wages in industries with union power below the threshold were positively affected by the tariff cuts.

Keywords: Trade Reform; Tariffs; Manufacturing Wages; Trade Unions; South Africa (search for similar items in EconPapers)
JEL-codes: F14 F16 O55 (search for similar items in EconPapers)
Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2007/50

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