South Africa’s distributive regime is striking to all who observe it. In this paper, Adam Aboobaker situates developments in post-apartheid income distribution within key macroeconomic developments and debates, arguing that deterioration in the wage share between 2000 and 2008 is better explained by factors associated with the commodity boom, rather than those associated with neoliberalism, such as austere fiscal policy, trade openness, or ‘financialization.’
Key findings
While the aggregate wage share remains close to its initial level at the start of democracy (Figure 1), the wage share in mining is 12 percentage points lower than at the beginning of 1993, after recovering somewhat from a nearly 20 percentage point decline over the commodity boom period (Figure 3). The ratio of consumer prices to sector level producer prices is the ‘wedge’ between real consumption and real product wage rates and in theory a key relative price determining distributive outcomes. In sectors like mining, where real product and real consumption wage rates may depart in significant part, workers may not easily observe the real product wage and nominal productivity shocks may weakly carry through to wages. In this context, the wedge may be closely associated with the wage share (Figure 5). This association is robust across several statistical tests.
Policy Recommendations
With talk of a new commodity super-cycle amidst the post-Covid global economic recovery, it may be prudent for the South African state to identify additional ways of capturing and channeling windfall rents into productive economic activity consistent with a long-run development strategy.
Figure: Aggregate wage share
This figure shows, the aggregate wage share fell significantly in the period around the year 2000 from a level of around 55% to lows of 47%, where it hovered until the Great Recession of 2008. After the Great Recession, the wage share roughly returned to its dawn-of-democracy level.
About Adam Aboobaker
- Adam Aboobaker: University of Massachusetts Amherst and University of the Witwatersrand (aaboobaker@umass.edu)
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