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WP 11/145 - Estimating the Causal Effect of Enforcement on Minimum Wage Compliance : The Case of South Africa

Author: 
Haroon Bhorat, Ravi Kanbur, Natasha Mayet

Date of Publication: 
November 2011

Abstract: 
This paper attempts to estimate the causal effect of government enforcement on compliance with minimum wages in South Africa, a country where considerable non-compliance exists. The number of labour inspectors
per capita is used as a proxy for enforcement, whilst non-compliance is measured using an index of violation that measures both the proportion of individuals violated, as well as the average depth of individual violation.
Due to the potential simultaneity between enforcement and compliance, the number of labour inspectors is instrumented by the number of non-inspectors. The results suggest that there are a variety of factors
impacting on violation, including firm-level, sectoral and spatial characteristics. One of the key determinants of violation is found to be the local unemployment rate. However, the number of labour inspectors is found to
be insignificant in determining non-compliance.

Download Working Paper: DPRU WP 11/145