Dissecting post-apartheid labour market developments: Decomposing a discrete choice model while dealing with unobservables

Working Paper 046
Martin Wittenberg
Publication date: 
January, 2007

The abolition of apartheid should have improved the employment prospects of black South Africans. The reality seems to have been different, with rising unemployment rates. Disentangling the real trends from changes in measurement and sampling design has proved to be difficult. We tackle this issue by means of an new methodology for decomposing changes in a proportion. Our approach is based on a methodology presented by Lemieux for continuous variables. In particular we show how we can construct counterfactual data at the individual level controlling for unobservable effects. We show that this methodology has many attractive features when compared to other approaches available. In particular it lends itself to graphical analyses. We use this methodology to explore changes in the proportion of African men being employed, unemployed and not economically active in South Africa in the post-apartheid period. Our results suggest that changes in the characteristics of these men have made them more employable over time, but that the propensity to be employed has declined. One might say that the human and social capital of these men has improved, but that the returns on that capital have declined. The net effect has been to leave measured employment more or less static. Changes in their characteristics and in their propensity to be economically active have both worked towards increasing the participation rate. As a consequence unemployment has risen over time. The analysis confirms that there are important measurement changes between different national surveys.

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