The research in this section focuses on modelling the labour market at the macro level uses various framework. The goal is to link labour market developments and their implications in terms of macro policies in general, monetary policy in particular.
An investigation of labour market flows in a search and matching setting with public and private sectors, capital-skill complementarity and embodied technological progress, and heterogeneity of both households and workers. We assume a skill gap in this model to analyse changes in labour flows due to productivity increases and public wage premium. Further, we model on-the-job search a la Moreno-Glabis and Sneessens (2007) between simple and complex jobs (for skilled individuals) and between public and private sector jobs (for all individuals). The heterogeneity between public and private sectors follows the framework by Gomes (2018). Here you will find work on
V. Dadam, N. Viegi. 2023.Investigating unemployment hysteresis in South Africa
Abstract: This paper investigates hysteresis in South Africa’s unemployment. First we test the presence of hysteresis in unemployment using traditional stationarity tests and non-linear transformation methods to identify two further characteristics of hysteresis, namely remanence and selective memory. In the second part of the paper we estimate a simple insider-outsider model using a Bayesian vector autoregression methodology to identify the shocks driving unemployment dynamics. The main finding is that mark-up shocks and negative productivity shocks are the main drivers of unemployment, with demand shocks playing a secondary role. Nominal wages are not responsive to real shocks and are an important component of inflation. These results point to the difficulty of absorbing the current level of unemployment without a significant increase in the flexibility of goods and labour markets. At the same time, the evidence suggests that, if reforms are being implemented, demand policies can play a significant role in improving employment and growth, reversing the structural unemployment evident in the data.
Under review at the South African Journal of Economics
V. Dadam, N. Viegi. 2019.Estimating a New Keynesian Wage Phillips Curve for South Africa
Abstract: This paper estimates a New Keynesian wage Phillips curve for South Africa to determine the responsiviness of nominal wages to employment conditions. The estimation is based on a New Keynesian model with staggered nominal wages setting and where all variations in hired labour input is taking place at the extensive margin. First we estimate the model using aggregate data from 1971 to 2013. The aggreagate estimations show that private sector nominal wages are not responsive to employment conditions, while they show a certain sensitivity to inflation and quite a good correlation with inflation expectations. The relationship between private sector nominal wage inflation and employment is clearly weak for the whole sample, and it becomes insignificant at the end of the sample, indicating an increase of wage rigidities in the post-apartheid South Africa. On the other hand the relationship between nominal wage inflation and price inflation is quite strong and robust for the whole sample but it becomes quantitatively weak for the inflation targeting period. In this period Trade Union inflation expectations are instead strongly correlated with nominal wage inflation.
In the second part of the paper we look at the relationship between nominal wage, productivity and the reservation wage, using a panel of nine industrial sectors over the period 1970- 2013 The findings confirms that nominal wages inflation have consistently outpaced the growth in productivity, even after correcting for inflation, and that employment conditions had little effect on wage dynamics. We also test for the possibility that the dynamic of wages is anchored by an underlined reservation wage to investigate the presence of an error correction in a wage equation for South Africa. The results show that labour productivity has a direct effect on wages and the reservation wage. The overall picture that comes out from the analysis is of a wage formation mechanism that is very insensitive to overall macroeconomic conditions.
Journal of Development Perspectives
