Skills-biased labour demand and the pursuit of inclusive growth in South Africa


Haroon Bhorat, Sumayya Goga and Ben Stanwix

Bhorat et al. (2013) examined the changing nature of occupational labour market trends in South Africa and the resulting impact on wages. Broadly speaking, the high levels of demand for skilled labour have intensified a trend that was already established before 1994. As a result, the gap between the wages of higher skilled workers and less skilled workers has increased especially in jobs that are affected by global competition and technological change.

Employment growth in the last decade changed in distinct ways.

Firstly, employment within the primary sectors collapsed. Agriculture and mining together lost over 700 000 jobs. Large numbers of lower skilled workers were forced out of employment

Secondly, employment in the manufacturing sector did not increase. In terms of production and exports, South Africa remains a resource-based economy without a significant globally competitive light manufacturing sector.

Thirdly, employment growth occurred mainly within tertiary sectors such as financial services and community services. The increase in financial services employment has largely been within the business activities sub-sector, which may reflect labour broking employment. Public sector employment grew faster than private sector employment and accounted for 15 percent of total employment in 2012. However, such growth has its limits, since increasing public sector employment is not an efficient or effective way to increase employment in the South African economy.

Because employment growth has been driven mainly by the tertiary sectors, employment in high- and medium-skilled occupations such as managers, professionals, service and sales workers has increased significantly. By contrast, there has been no significant growth in the number of low skilled workers, and the proportion of medium-skilled workers in the primary and secondary sectors of the economy has declined. In addition, an analysis of occupation demand using the Katz-Murphy decomposition model further shows that within-sector shifts outweigh between-sector shifts in explaining relative labour demand. This supports the claim that technological changes, among other factors, have played an important role in employment trends.

Increasing demand for skilled labour has also fed into and changed the structure of wages and therefore wage inequality. Most studies of changes in inequality and the wage structure have examined income changes due to traditional measures of skills like education and experience (e.g. Katz and Murphy, 1992) or labour market institutions (e.g. DiNardo, Fortin, and Lemieux, 1996). Recent extensions to this work focus on the notion of routine tasks rather than occupations. The current work emphasises the role played by technology and trade, in the presence of increasingly routinised tasks and offshoring, in driving down wages. The quintile regression run suggest that – when controlling for age/experience, race and education – jobs which involve automated or routine tasks and those without any face-to-face component (largely lower to medium-skilled jobs) have experienced a drop in wage levels over time across most income levels.

Thus, relative wage increases in occupational tasks appear to be influenced by structural changes such as technology and international competition.

Haroon Bhorat is Professor of Economics and Director of the Development Economics Research Unit (DPRU) at the University of Cape Town

Sumayya Goga is a consultant at Pegasys, Johannesburg

Ben Stanwix is a researcher at DPRU, University of Cape Town

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