Macroeconomic determinants of South Africa’s post-apartheid income distribution

Monday, 11 April, 2022 - 16:00

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South Africa’s distributive regime is striking to all who observe it. This paper 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’. The distribution of market income has undergone developments at the sector level post-apartheid that have received little attention. While the aggregate wage share remains close to its initial level at the start of democracy, the wage share in mining is 12 percent lower than at the beginning of 1993, after recovering somewhat from a nearly 20 percent decline over the commodity boom period. 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. Other sectors (as defined in the national accounts) have different dynamics. The wage share in manufacturing has stabilized at a level nearly 20 percent higher than where it was in 2005. In utilities, the wage share resembles a mountain with a steep climb during the first fifteen years of democracy and a sharp cliff edge around the Great Recession. This paper reviews existing debates about macroeconomic policy and performance, before considering evidence from autoregressive distributed-lag and error correction models. The conventional wisdom underlying progressive advocacy for a better performing and more equitable macroeconomy are not in keeping with the data presented here, nor a closer reading of the policy debates it has drawn inspiration from. This calls for reorienting the focus of radical policy critique from insufficient state allocation of resources toward social policy to a critique concerning the post- apartheid state’s failure to mobilize the necessary resources to drive forth rapid structural transformation.

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