Trade Liberalisation and Labour Demand within South African Manufacturing Firms

Abstract

Using new detailed tariff data, wages disaggregated by skill level and firm level information, this paper ascertains the relationships between trade, technology and labour demand and investigates the effects of tariff changes on factor prices in South African manufacturing. We find evidence that trade liberalization and technological change have affected the skill structure of employment. Export orientation, raw materials imports, training, investment in computers and firm age are positively associated with the skill intensity of production. We also find that tariff liberalisation raised the return to capital relative to labour, but that the negative impact on labour is concentrated on semiskilled workers. Tariff liberalisation mandated a rise in real returns to unskilled workers.

Notes

1 Much controversy surrounds the reliability of South African statistical series (see Standing et al. (1996) for a critique). Statistics South Africa's Survey of total employment and earnings (STEE) shows a decline in formal sector (excluding agriculture) employment during the late 1990s. In contrast, the October Household Surveys show a small rise in employment once agriculture and the informal sector are included. However, in all cases employment growth has been poor.

2 See Slaughter (1998) for a review of many of the international studies.

3 This motivates the use of factor share equations based on a translog cost function. Behar (2004) estimates shares using NE data and finds some occupations could be complements. However, factor share equations estimated in levels produce results entirely consistent with the CES estimates, which present the results of key interest in a more appealing form. Furthermore, presenting the CES estimates allows ready comparison with Edwards (2003).

4 Edwards (2003) estimates change in labour demand functions for each skill category. However, the employment changes are in a categorical format (increase, decrease, no change) and only cover the period early 1988 to late 1999. The employment changes thus do not represent the impact of the more extensive tariff liberalisation that has taken place from 1994.

5 Note that the sum of factor cost shares equals 1, thus .

6 This relationship is easily extended to allow for intermediate inputs. In this case, the percentage change in value-added prices replaces the gross output price.

7 The dual Tornqvist index of TFP is defined as the difference in the log change in industry prices and the cost-shared weighted change in factor prices. Substituting this measure of TFP into (6) yields an indentity.

8 The data are available from the authors on request.

9 We thank Johannes Fedderke for providing the depreciation rate data.

10 For a detailed discussion on trade liberalisation see Holden (1992), Bell (1997) and Jenkins et al. (1997).

11 The relative wage is produced by restricting the coefficients on managerial/professional and skilled/artisan wages to be equal and those on semiskilled and unskilled to be equal.

12 Together with the higher values in columns 5 and 6, the results also suggest the production technology would be usefully represented by a two-level CES function.