Aggregate and sectoral public-private remuneration patterns in South Africa Research Brief

17 July 2019
Publication Type: Working Paper
JEL Code: C30, E30, J30

This paper investigates the aggregate and sectoral public-private remuneration pattern in South Africa since the introduction of an inflation-targeting framework in 2000.

The analysis is carried out with quarterly data for aggregate and 5 public and 6 private sector earnings per employee. Two research questions are addressed: First, is there a pattern of earnings development between the public and private sectors? This question is important, because the nature of the pattern can have different consequences for labour market performance. Second, is South Africa exposed to “Dutch disease”, which refers to the “infection” of earnings outside the resource extraction sectors by the externally determined ups and downs of resource extraction profitability.
The rich international literature on public-private remuneration patterns finds that in most cases public sector remuneration follows developments in the private sector, although exceptions are found for some East European economies during early phases of transition from central planning to a market economy. “Dutch disease” is found to be a regular feature of economies with a major resource extraction industry.
Econometric analysis confirms that there is a stable, long-run relationship between average remuneration in the public and private sector. The adjustment to the deviations from this long-run relationship is strong and significant for public-sector remuneration, while private-sector earnings neither respond to the deviations from the long-run relationship nor lagged changes of public sector remuneration. In other words, average remuneration in the public sector is following the private sector in the long run. In the short run individual public-sector remuneration is also found to follow individual private-sector remuneration, but not the other way around. For individual private sector remuneration some influence from public sector earnings cannot be rejected, but it is in general weak. The answer for the first question is a pattern where remuneration in the public sector wages follows the private sector on average.
Concerning the second question we find that remuneration in the mining sector does not influence remuneration in any other private sector, therefore a traditional “Dutch-disease” hypothesis for South Africa is rejected.
If this pattern remains stable, efforts to slow down the speed of the wage-price spiral should not exclude the private sector. Targeting public sector earnings alone will only have a weak influence on private sector earnings.
Research Brief 194
1 July 2019

Related South Africa’s Cities and Growth Spatial Challenges and Policy Interventions Content

South Africa’s future will be decided in our cities
Discussion Document 14 South Africa’s cities face multiple, overlap...
Published: 23 June 2023
Discussion Document
Monitoring South Africa’s metropolitan economies: A survey of the data landscape
Discussion Document 13 Disparities in data across different metropo...
Published: 22 May 2023
Discussion Document
Cities, productivity and Jobs in SA: Problems and potential
Discussion Document 12 Cities contribute to national prosperity bec...
Published: 22 May 2023
Discussion Document
Place-based economic policies: international lessons for South Africa
Discussion Document 11 Place-based policies are designed to support...
Published: 22 May 2023
Discussion Document
What luminosity data can and cannot reveal about South Africa’s urban economies
Discussion Document 10 As novel types of data are becoming availabl...
Published: 22 May 2023
Discussion Document
Crime: A policy-oriented survey
Discussion Document 9 South Africa has a reputation for having high...
Published: 22 May 2023
Discussion Document
Virtual CDE Workshop on SA Cities and Growth
Urban economics has provided powerful insights into how the charact...
Published: 12 December 2022

Search Resources

Ground Floor Brookside Building
11 Imam Haron Road
Claremont, 7700
Cape Town

PostNet Suite # 109
Private Bag X1005
Claremont 7735
Cape Town

Get Social