South Africa, which emerged from apartheid as one of the most exciting economic stories on the African continent, has lately descended into crisis.
Strikes are debilitating the country's mining sector, which is a large employer and a key producer of South African exports.
At the same time, unemployment remains staggeringly high – about 1 in 4 people in South Africa are without jobs.
Part of this is due to capital-intensive industries like mining, which increasingly use more machines at the expense of manpower, are rising in importance in South Africa, and demand for skilled laborers far outweighs that for unskilled workers.
Another key contributor, however, has been South Africa's labor union structure. NBER economists explained in a research paper examining South African unemployment:
One could imagine that the presence of so many unionized workers might drive up wages faster than productivity growth, thereby exacerbating unemployment. This is especially a problem because collective agreements reached by bargaining councils in South Africa can be extended to all workers and to all firms in an industry, even if they were not parties to the negotiations (see Bendix, 2003). Bargaining council agreements cover about 25 percent of formal sector employees (Godfrey, Maree and Theron., 2006).
Wages have been outpacing labor productivity in South Africa for years. Now, a new round of collective bargaining agreements has brought the imbalances to a head and have thrown the South African economy into crisis.
South Africa has an unemployment crisis – the official unemployment rate stands at 24.9 percent
The country also has one of the lowest labor force participation rates in the OECD
At the heart of this unemployment crisis is the wage dynamic – wages have grown faster than labor productivity in recent years, which reduces demand for workers
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