International conference: WTO Public Forum

South Africa - 21 November 2017

Title: Inclusive growth and wage inequality: The case of South African manufacturing exporters
Author(s): Paper to be presented by Bezuidenhout, C., Matthee, M. & Rankin, N.

The experience of many countries around the world is that there is a clear link between a vibrant export sector and strong economic growth. In fact, the 2030 Agenda for Sustainable Development identifies exports as an engine for inclusive growth, which helps to alleviate poverty and create jobs and more sustainable societies. However, exporting also poses a challenge to the achievement of such inclusive growth because it induces wage inequality between exporting and non-exporting firms. The literature shows that exporting firms pay a wage premium relative to non-exporting firms, with the resultant wage gaps having widened over the years in line with expanding global trade. South Africa’s export sector is ripe for expansion and diversification, but the country can ill afford to fuel a widening wage gap in its manufacturing sector given the country’s global reputation as having one of the most unequal societies in the world. Thus, policies need to be carefully crafted which will stimulate a more robust, job-enriched export sector while also minimising the risk of hostile reactions from non-exporting businesses.

Little formal research has been done on the distribution of wages within manufacturing exporting firms relative to non-exporting firms in South Africa and how wage differentials might contribute to wage inequality. To address this research gap, a multi-party research initiative was launched some years ago involving policy makers from South Africa’s National Treasury, the South African Revenue Service (SARS), UNU-WIDER and academics from North-West University and Stellenbosch University. As part of the research programme, UNU-WIDER and the National Treasury initiated a specific study on labour market analysis. This paper forms part of the labour market analysis by disentangling the wage differentials between exporting and non-exporting firms in the South African manufacturing sector, using newly available firm-level data (covering the period 2010‒2014). It also considers wage inequality within exporting companies and probes possible sources of such inequality by analysing firm characteristics, types of product exported and types of destination served.

Among the researchers’ findings were that all employees (across the wage distribution) in an exporting firm earned a wage premium, with much of the wage inequality being explained by the size (number of employees) and labour productivity (output per worker) of the firm. This implies that larger, more productive firms are more likely to be exporters, whereas there was little evidence that wage inequality is driven by either the type of destination country or the quality of export products. This might suggest that the wage inequality is related to the process of exporting or simply a firm being in the export market, or is attributable to a specific type of firm (employing a specific type of person with sought-after skills) which had this (unequal) wage distribution even before it started to export.

The study makes an important contribution to the South African literature on exporters at the firm level and to the export policymaking landscape in the country. It also constitutes a promising foundation for further research.