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WP 04/086 - Co-ordination Failure and Employment in South Africa

Author: 
David Fryer and Desire Vencatachellum

Date of Publication: 
June 2004

Abstract: 
South Africa lost more than 890,000 jobs, but saw an increase in the number of skilled workers from 1989 to 1999. We argue that this is the consequence of well-documented acute apartheid-era distortions which led to a current coordination failure where (i) firms are locked into a mostly skillintensive technology where they have very little demand for semi-skilled and unskilled labour, and (ii) there are too few semi-skilled and skilled blacks. It follows that the average level of blacks human capital is too low for firms to adopt a technology which makes intensive use of less skilled workers in the production process. A firm cannot unilaterally change technology because current skilled (mostly white) workers would lose and move to other firms. All of this points to a missing market for semi-skilled workers. Wealth redistribution and public investments in both the quantity and quality of education are shown to be Pareto-improving. JEL Classification: O14, J48 Keywords: South Africa, Employment, Human Capital, Coordination Failure, Apartheid

Download Working Paper: DPRU WP 04/086