Search, Transport Costs, and Labor Markets in South Africa

Kishan Shah () and Federico Sturzenegger ()
Additional contact information
Kishan Shah: Harvard Kennedy School
Federico Sturzenegger: Universidad de San Andres and Harvard Kennedy School

No 164, Working Papers from Universidad de San Andres, Departamento de Economia

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 desegregation. 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.

Pages: 52 pages
Date: 2022-07, Revised 2022-07
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Citations: View citations in EconPapers (2)

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https://webacademicos.udesa.edu.ar/pub/econ/doc164.pdf First version, July 2022 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:sad:wpaper:164

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