Understanding the impacts of minimum wages in South Africa: Evidence using national administrative tax data

Abstract

Governments around the world are increasingly implementing minimum wages.In South Africa (SA), there is a concern that minimum wages may contribute to increasing already high unemployment rates. Yet there is little consensus about how the minimum wages affect the economy, especially how the effects vary across different local labour market conditions. In this research, we ask: 1. Do employment impacts of minimum wages change by local labor market concentration as a standard theory predicts? 2. Does the survival probability of marginal firms decrease in a highly concentrated local labor market? Answering 1 helps predict the sector where unemployment can rise with minimum wages. Answering 2. helps understand long term and probably unintended consequences of minimum wages on market concentration and economy wide reallocation. We implement the research using matched employer-employee tax data (CIT-IRP5) of South African Revenue Services (SARS) at National Treasury, Secure Data Lab (NT-SDL). We utilize the firm level variations in the number of affected workers by sectoral minimum wages to estimate impacts of 1. 

Researchers

Michael Kilumelme, Ph.D. student, Stellenbosch University
Dieter von Fintel, Professor, Stellenbosch University
Seiro Ito, Director, Microeconomic Studies Group, Development Studies Center, Institute of Developing Economies, Japan
Noreen Kajugusi, Graduate Student, University of Cape Town