The Economics of Discrimination and Affirmative Action in South Africa

South Africa stands out as one of two countries whose economy has been shaped by the discrimination of the majority of the population. To redress the past, the society has grappled with the contested issue of how affirmative action policies, aimed at the majority, can shape economic outcomes. The chapter begins by summarizing the historic institutionalization of racial discrimination in South Africa, outlining some of the features of the past process that excluded black people from active participation in the economy. Various legislations are outlined spanning the period of the 1890s to 1960s. Thereafter, an analysis of key developments in the democratic era is made. The section examines employment trends in the labor market, the broader economy, and in key institutional settings such as higher education and in the political system. The assessment reveals that while the absolute numbers and employment share of women and black people have improved, it has coincided with higher unemployment for these groups. Occupational segregation continues as previously disadvantaged individuals are increasingly employed in low-skilled and low-paying jobs. Finally, the authors construct a simple discrimination index that will compare employment or participation trends in the highlighted segments across broader population or labor force shares. The analysis indicates that transformation has occurred and firms or institutions have undertaken the necessary shifts toward reducing discrimination along gender and racial lines. These findings are assessed against existing literature and present the prevailing evidence on the effects of affirmative action policies in South Africa.