Publication: Does Employing Workers or Accepting Work Pay? Analyzing Labor Costs in South Africa
Loading...
Published
2018-04-30
ISSN
Date
2018-08-10
Author(s)
Editor(s)
Abstract
For more than a decade, South Africa has experienced falling labor force participation rates while maintaining relatively high unemployment rates, particularly among its youth. This paper examines the role of labor costs from the perspectives of employers and workers by combining information from national accounts and household surveys. To better understand the employer’s perspective, we calculate the labor costs and set them in relation to productivity, thereby deriving unit labor costs. To analyze the worker’s perspective, we disentangle the tax-wedge and further work-related costs borne by workers. The results show that labor costs in the South African economy increased disproportionally relative to productivity. This is largely due to labor cost growth in the manufacturing and industry sector. An international comparison of unit labor costs shows that other countries with similar unit labor cost levels have not registered such a strong increase over the same period. To identify causes for the increase in labor costs, we decompose the determinants using household data and follow the development of work-related costs over time. We compare the results for South Africa to a set of comparator countries and identify unionization, specific sectors and skill mismatch as particularly influential for South Africa. The results show that stagnating productivity may be associated with a lack of highly qualified workers, also in comparison with benchmark countries. This note was prepared as a background note to the South Africa Systematic Country Diagnostic.
Link to Data Set
Citation
“Langbein, Joerg; Weber, Michael. 2018. Does Employing Workers or Accepting Work Pay? Analyzing Labor Costs in South Africa. © World Bank. http://hdl.handle.net/10986/30194 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Wage Subsidy and Labor Market Flexibility in South Africa(2009-03-01)In this paper, the authors use a highly disaggregate general equilibrium model to analyze the feasibility of a wage subsidy to unskilled workers in South Africa, isolating and estimating its potential employment effects and fiscal cost. They capture the structural characteristics of the labor market with several labor categories and substitution possibilities, linking the economy-wide results on relative prices, wages, and employment to a micro-simulation model with occupational choice probabilities in order to investigate the poverty and distributional consequences of the policy. The impact of a wage subsidy on employment, poverty, and inequality in South Africa depends greatly on the elasticities of substitution of factors of production, being very minimal if unskilled and skilled labor are complements in production. The desired results are attainable only if there is sufficient flexibility in the labor market. Although the impact in a low case scenario can be improved by supporting policies that relax the skill constraint and increase the production capacity of the economy especially towards labor-intensive sectors, the gains from a wage subsidy are still modest if the labor market remains very rigid.Publication Analyzing Markets for Health Workers : Insights from Labor and Health Economics(Washington, DC: World Bank, 2014-06-23)The aim of this publication is to examine how labor and health economics can be used to analyze and better understand the role and functions of health worker labor markets. Health workforce shortages stem not only from inadequate overall supply, but also from suboptimal allocation of health human resources by location and role. Low performance and productivity are also issues. These three problems are often compounded by a resource problem - the gap between the finances required for an adequate workforce and those likely available. The application of labor economics to health care labor markets needs to account for the specific institutional features and market failures in health care. The document is organized as follows: first section gives introduction, the second section sets out a broad framework that needs to be used when examining health care labor markets. The third section summarizes the key issues surrounding the demand and supply of health workers and how these interact in the health worker labor market. The fourth section summarizes the broad analytical approaches used in economics, focusing on issues of causality and labor market dynamics. The final section suggests some gaps in research and analysis for health worker labor markets in low- and middle-income countries (LMICs).Publication Severance Pay Programs around the World(World Bank, Washington, DC, 2011-05-22)The paper examines severance pay programs around the world by providing the first ever overview of existing programs, examining their historic development, assessing their economic rationale and describing current reform attempts. While a significant part of the paper is devoted to a comprehensive 183 cross country review of existing severance arrangements and their characteristics, the paper goes beyond a mere description. It develops and empirically tests three hypotheses about the economic rationale of the program, namely severance pay being: (i) a primitive income protection program, (ii) an efficiency enhancing human resource instrument, and (iii) a job protection instrument. The paper also reviews the recent reforms of Austria, Chile, Italy, and Korea.Publication Working Out of Poverty : Job Creation and the Quality of Growth in Africa(Washington, DC : World Bank, 2008)This paper explores Africa's economic performance and the creation of jobs over the decade and more since 1995, recognizing that some standard labor concepts are difficult to apply to conditions prevailing in Africa. The intent of the paper is to identify the economic factors behind the more successful outcomes and the options available for improving the quality of growth. The report focuses on several key issues: how has the structure of economic growth and labor demand shaped the job creation process? Does rigidity in African labor markets impede job creation? Have the quality and quantity of the labor supply affected job creation? What policies have been pursued to raise the quality of the African labor force? What does the expanding "informal" sector mean for the labor market and the quality of growth? Is it a route out of poverty or a low-skills trap? Throughout the paper, the focus is on the factors, exogenous and endogenous, that are linked to the outcomes, and the implications that these factors may have for raising the quality of Africa's economic growth. Some countries have reversed many of the vicious cycles underlying Sub- Saharan Africa's generally poor performance on job creation; those countries are highlighted where adequate data are available, and the lessons these experiences offer all stakeholders in meeting the growth and poverty reduction challenges of the future are pointed out. The paper concludes that Africa's record of poor economic performance has in part been an inevitable result of its colonial heritage-the low levels of human capital at independence. It is also a function of the ensuing policies pursued, especially those that led to the debt crisis and the subsequent recession and public sector restructuring. In most countries, these costs have been paid, and the future looks brighter as a result.Publication What Explains Prevalence of Informal Employment in European Countries : The Role of Labor Institutions, Governance, Immigrants, and Growth(2011-12-01)This paper looks into institutional and other macro determinants of prevalence of informal dependent employment, as well as informal self-employment, in European countries, using European Social Survey data on work without legal contract in on 30 countries, covering years 2004-2009. Consistently with theoretical predictions, quality of business environment has a significant negative impact on prevalence of both types of informal employment. The share of non-contracted employees is negatively affected by perceived quality of public services and positively related to economic growth. Informal self-employment is positively related to growth in Europe at large, as well as in Eastern and Southern Europe. The level of GDP per capita also has a positive impact on the prevalence of informal employment in Europe at large and within Eastern and Southern Europe, whilst an opposite effect is found in Western and Northern Europe. Other things equal, the share of non-contracted employees in the labor force across European countries increases with the minimum-to-average wage ratio, with union density, with the share of first and second generation immigrants, and with income inequality, but falls with stricter employment protection legislation (EPL) and higher tax wedge on labor. Thus it appears that in Europe at large, labor cost effects of EPL and taxes are weaker than their impact via perceptions of job security and law enforcement, along with tax morale and the income effect. Yet the EPL effect on informality is positive (i.e., cost-related) when either Eastern and Southern Europe or Western and Northern Europe are considered separately. Furthermore, within Western and Northern Europe, the minimum wage effect is negative, whilst within Eastern and Southern Europe, the union effect is negative; in both cases, we offer a supply side explanation.
Users also downloaded
Showing related downloaded files
Publication Regional Poverty and Inequality Update: Latin America and the Caribbean, October 2025(Washington, DC: World Bank, 2025-10-23)This brief summarizes recent facts related to poverty and inequality in Latin America and the Caribbean (LAC) using the latest wave of harmonized household surveys from the Socio-Economic Database for LAC (SEDLAC). This brief was produced by the Poverty Global Practice in the LAC Region of the World Bank.Publication Female Headship and Poverty in the Arab Region(World Bank, Washington, DC, 2024-01-23)Various challenges are thought to render female-headed households (FHHs) vulnerable to poverty in the Arab region. Yet, previous studies have had mixed results and the absence of household panel survey data hinders analysis of poverty dynamics. This paper addresses these challenges by proposing a novel typology of FHHs and analyzes synthetic panels constructed from 20 rounds of repeated cross-sectional surveys spanning the past two decades from the Arab Republic of Egypt, Iraq, Jordan, Mauritania, the West Bank and Gaza, and Tunisia. The paper finds that the definition of FHHs matters for measuring poverty levels and dynamics. Most types of FHHs are less poor than non–FHHs on average, but FHHs with a major share of female adults are generally poorer. FHHs are more likely to escape poverty than households on average, but FHHs without children are the most likely to do so. While more children are generally associated with more poverty for FHHs, there is heterogeneity across countries in addition to heterogeneity across measures of FHHs. The findings provide useful inputs for social protection and employment programs aiming at reducing gender inequalities and poverty in the Arab region.Publication Implementation of Treasury Single Account and Strengthening of Cash Management in Vietnam(Washington, DC, 2014-01)Vietnam has made progress to improve oversight and control over cash balances for the state budget. The current arrangement however falls short of a treasury single account (TSA), which has led to inefficiencies in the management of cash balances and higher than necessary borrowing costs. In response to this, the Government of Vietnam has embarked on reforms to adopt a TSA and strengthen overall cash management. This policy note provides a review of progress in implementing a TSA system in Vietnam, the remaining challenges and obstacles, and how to overcome these for further TSA and cash management reforms. It is the product of ongoing discussions between the World Bank and the Ministry of Finance. Part A gives background and motivation; part B provides an overview of the state treasury system in Vietnam; part C reviews the progress in establishing a TSA, including against benchmarks of international good practice, and makes recommendations for priority next steps; and part D concludes with a review of cash management functions.Publication Thailand Monthly Economic Monitor, October 2025(Washington, DC: World Bank, 2025-10-22)Fiscal conditions remained stable, with a modest widening of the deficit to 3.1 percent of GDP. New stimulus measures are expected to support short-term demand without breaching the public debt ceiling. Inflation stayed negative, reflecting lower energy and food prices amid subdued domestic demand. The central bank kept the policy rate unchanged, citing limited policy space. Thailand’s growth momentum has slowed further as manufacturing activity and services weakened as projected. Tourism remained subdued, largely due to fewer Chinese visitors. Goods exports also slowed as earlier front-loaded orders faded, particularly in agriculture and industrial goods. The Thai baht depreciated in early October as the US dollar appreciated and the current account turned negative.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.