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Search, Transport Costs, and Labor Markets in South Africa

Author

Listed:
  • Kishan Shah

    (Harvard Kennedy School)

  • Federico Sturzenegger

    (Universidad de San Andres and Harvard Kennedy School)

Abstract

South Africa’s labor market exhibits a unique equilibrium with one of the highest unemployment rates in the world and yet a low level of informal employment. The unemployment rate has remained high and persistent over recent decades, in spite of the formal demise of the apartheid regime and subsequent transition to democracy in 1994. This paper uses a matching model of the labor market to argue that spatial considerations combined with low productivity of informal work may be responsible for such an outcome. Spatial dispersion inherited from the apartheid regime thins the labor market, creating exclusion and perpetuating spatial desegregation. In most developing countries, the result would be higher employment in informal or own account employment. However, with low productivity in the informal sector, the high rate of exclusion shows itself in higher unemployment rates instead. Transportation costs and housing deregulation may become key factors in improving the working of the labor market in South Africa especially if it is not possible to raise informal productivity.

Suggested Citation

  • Kishan Shah & Federico Sturzenegger, 2022. "Search, Transport Costs, and Labor Markets in South Africa," Working Papers 164, Universidad de San Andres, Departamento de Economia, revised Jul 2022.
  • Handle: RePEc:sad:wpaper:164
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    File URL: https://webacademicos.udesa.edu.ar/pub/econ/doc164.pdf
    File Function: First version, July 2022
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    References listed on IDEAS

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    1. Andre Hofmeyr, 2010. "Social Networks And Ethnic Niches: An Econometric Analysis Of The Manufacturing Sector In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 78(1), pages 107-130, March.
    2. Jeremy R. Magruder, 2012. "High Unemployment Yet Few Small Firms: The Role of Centralized Bargaining in South Africa," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 138-166, July.
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    Cited by:

    1. Ricardo Hausmann & Tim O'Brien & Andres Fortunato & Alexia Lochmann & Kishan Shah & Lucila Venturi & Sheyla Enciso & Ekaterina Vashkinskaya & Ketan Ahuja & Bailey Klinger & Federico Sturzenegger & Mar, 2023. "Growth Through Inclusion in South Africa," CID Working Papers 434, Center for International Development at Harvard University.
    2. South African Reserve Bank, 2023. "A. Inflation and labour markets in the wake of the pandemic," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation and labour markets, volume 127, pages 273-286, Bank for International Settlements.

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