Wage premia and wage differentials in the South African labour market

The aim of this paper is to highlight wage trends and patterns in the South African labour market through examining wage premia and wage differentials. The analysis utilises data from the October Household Survey of 1995. Findings show that the regular race, gender and educational differentials arise when looking at median wages, with the racial wage gap being more severe than the gender wage gap. One of the key reasons for the racial wage differential, specifically between that of Africans and Whites, is the higher rate of return on education for White workers. The higher rates could be due to unofficial discrimination; a perception that degrees from historically white universities are of a higher quality than degrees from historically black universities; and the accumulation of human capital by White workers in areas of high demand by firms. There also appears to be a racial wage cleavage between Africans and Coloureds on the one hand and Asians and Whites on the other. Significant wage premia exist for skilled workers in the labour market and these are borne out in the percentile differentials of race, gender and education. Sectoral wage data show that high skills-intensive sectors yield higher levels of wage inequality than low skills-intensive sectors. Findings from a tentative international comparison show that, relative to most developed countries, South Africa has high levels of wage inequality.