Firm Dynamics, Job Outcomes, and Productivity: South African Formal Businesses, 2010-14

Reyes Aterido, Ayanda Hlatshwayo, Duncan Pieterse and Andre Steenkamp

No 30920562, Jobs Group Papers, Notes, and Guides from The World Bank

Abstract: The formal private sector has a key role to play in fostering growth and reducing unemployment in South Africa—strengthening its performance is therefore critical. This paper looks at firm behaviour, firm entry and exit, job outcomes, and productivity dynamics using firm-level administrative data for South Africa. It is the first paper to benchmark employment and productivity dynamics against various comparator countries for which similar analysis has been undertaken. The paper finds that South Africa has an aged private sector with low firm dynamism and characterized by large firms that hold a large share of employment and revenue, although they are not as productive as micro firms and pay lower wages on average. The paper also finds that job creation is concentrated predominantly in incumbent firms, which are old and large, and job creation from entry and exit is negligible. The static and dynamic productivity decompositions raise a concern that although productive efficiency is gained, it is at least in part at the expense of labor. Large firms are not exploiting economies of scale, and particularly unproductive large firms may drive the weak performance of the private sector. Relatively high wages in South Africa could be partly explained by the inefficient use of labor and negative correlation between productivity and size. Likewise, these larger firms could be responsible for the negative direct impact on jobs of firms raising productivity.

Keywords: income elasticity of demand; price elasticity of demand; annual average growth rate; high levels of concentration; marginal product of labor; net job creation; share of employment; micro firms; total factor productivity; aggregate productivity growth; wage worker; output per worker; barrier to entry; number of workers; terms of sale; determinants of growth; economic policy analysis; learning by doing; volume of services; state electricity utility; random effects model; level of policy; employment in agriculture; global value chain; within-firm productivity growth; skill development levy; types of firms; labor market activity; local government entity; official unemployment rate; Merger and Acquisitions; lack of competition; unemployment insurance fund; final consumption expenditure; allocation of labor; employee income tax; company income tax; high productivity growth; movement of worker; social accounting matrix; balance of payment; economies of scale; decline in productivity; improvement in productivity; share of export; firm size; labor productivity; comparator country; productivity dynamic; firm entry; employment share; increase productivity; high wage; manufacturing sector; regression analysis; productivity gain; average wage; negative correlation; output market; firm dynamic; employment growth; dynamic decomposition; Finance Sector; negative coefficient; standard deviation; market friction; standard error; formal sector; longer period; formal employment; measurement error; marginal effect; administrative datum; inefficient firms; independent variable; within-firm effect; base period; temporary worker; reallocation effect; informal sector; commerce sector; sample survey; Retail Sector; transition matrix; summary statistic; base year; average productivity; largest firms; unbalanced panel; financial market; tax form; labor policy; Labor Policies; factor allocation; business cycle; employment demand; between-firm effect; skill bias; technological change; unintended consequence; wage premium; wage inequality; marginal probability; high employment; individual producers; greenfield investment; real wage; market distortion; sample period; selection bias; Gross Salary; capital increase; instrumental variable; firm growth; sectoral approach; high unemployment; job destruction; firm expansion; high share; manufacturing production; smaller number; employment size; administrative efficiency; labor share; financial information; income statement; tax information; labour reallocation; weighted average; efficient mechanism; simple model; empirical research; result data; average sales; marginal improvement; construction sector; firm exit; high concentration; cross-country benchmark; government support; financial service; international market; export good; collaborative effort; unskilled worker; market structure; commercial agriculture; entrepreneurial ability; world economy; capital intensity; probit regression; domestic consumption; export status; age category; retail firms; real export; basic specification; individual effect; labor ratio; coefficient estimate; formal business; downward bias; spurious result; firm-level productivity; International Trade; firm level; substitution effect; explanatory variable; productivity decomposition; mining industry; dynamic change; fixed effect; downstream industry; cheap energy; mineral wealth; negative relationship; apartheid government; productivity measurement; regression results; total employment; Capital Investments; agriculture sector; Informal Economy; rural area; agricultural input; food processing; sectoral composition; production side; commodity boom; entry dynamics; labor allocation; domestic production; higher growth; employment multiplier; goods market; improving performance; worker productivity; negative value; cyclical downturn; industry index; total worker; multivariate analysis; labor shedding; consumer product; mining equipment; service contract; demand shift; secondary sector (search for similar items in EconPapers)
Pages: 48
Date: 2019-03-21
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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