The DPRU is currently engaged in a variety of interesting and diverse projects and studies. Our research programme has recently been able to enter new terrain, principally through the availability of unique or new datasets. Be it the data on recipients of unemployment insurance, or dispute resolution, or even strikes, these novel datasets have opened up an entirely new and rich set of economic and econometric questions, which were not previously possible.
There are four key areas of research excellence which the DPRU is building, or has already built, a scientific foundation in:
1. Minimum Wage Analysis
a. The DPRU has become the international focal point for African work on understanding the impact of minimum wages in the region. Hence the South African National Minimum Wage Commission have requested Prof Bhorat and his team undertake the impact analysis of the National Minimum Wage (NMW). This work uses innovative econometric techniques, combining a Difference-in-Difference with a Regression Discontinuity Design. In addition, minimum wage analysis is being done for Mauritius (see DPRU working paper), the Comoros, and other African countries.
b. This work on minimum wages has also been extended via the development of a Multiple Index of Violation (MVI). The MVI is a novel index used to measure the extent and depth of minimum wage violation, and includes non-wage measures of violation. The MVI involves applying the Alkire-Foster method of measuring multi-dimensional poverty and also using principal components to robustness check the measure (a forthcoming British Journal of Industrial Relations article). The MVI has now been applied globally in 24 countries around the world
2.The Application of Economic Complexity
The “Building Economic Complexity in Africa” project involved the first application of this novel methodology, using the analytical framework and empirical tools of economic complexity, to examine the nature and extent of structural transformation across a sample of four African economies. In turn, the methodology was applied to the economics project element of the “Towards Resilient Futures” Community of Practice: considering how economic complexity might be built on the basis of an understanding of local socio-economic linkages. This research involved building the first ever product space mapping from first principles (for fibrous plants) whilst also using new coding techniques (Python).The DPRU’s pursuit of this rich research agenda has attracted the interest of the AfDB, merSETA and others.
3. Skills, Tasks and the Implications for the Labour Market
The DPRU's research on inequality and structural transformation adds to the growing body of literature exploring trends in tasks and the skill content of jobs in developing countries. Specifically, we are the first in the country – and possibly the developing world – to apply the unique O*NET dataset's tasks coding system to an understanding of employment dynamics over time.
4. New Analytical Frontiers in Economics
In 2019, the DPRU undertook research in several new areas: The Employment Tax Incentive, a policy aimed at boosting youth employment; Temporary Employment Services, a new form of employment in South Africa; and we also conducted the first thorough integrative analysis of active labour market policies in South Africa.
2020 Research Projects:
Labour Market Intelligence Research Programme (LMI)
The Department of Higher Education and Training (DHET) with support from the National Skills Fund (NSF) has approved the implementation of a new phase of the Labour Market Intelligence (LMI) Research Programme. The University of Cape Town (UCT), and specifically the Development Policy Research Unit (DPRU), will be acting as Project Managers. The aim of this programme is to establish a credible institutional mechanism for skills planning.
The LMI research programme comprises several research projects related to the identification of current and future skills needs and shortages, the identification of interventions required to address skills needs and shortages, and the exploration of ideological, philosophical and empirical approaches to understanding the relationship between education and the economy. Broadly speaking, the overarching work of the researchers undertaking this project will, over a five-year period, essentially involve identifying and measuring the extent of skills imbalances in the labour market. It will conduct research, collect information, track vacancies, analyse findings and inform labour market information users of ‘bottlenecks’ in skills demand and supply in the labour market.
The DPRU's research activity includes:
- 5a: The Fourth Industrial Revolution: researching the implications of the 4IR for skills supply and demand
- 5b: Skills Supply & Demand: research and analysis on skills supply and demand in South Africa, and the 'imbalances'
- 5c: Wage Analysis
- 5d: Update on the Key Indicators for Skills Planning (KISP)
- 5e: Conceptual framework for reporting on the performance of the PSET System
Outputs: Expected: 2019-2024.
Inclusive Growth Programme (IGP)
The Inclusive Growth Programme (IGP) is an initiative of the Department of Trade and Industry, established with the aim of identifying, investigating and implementing innovative and practical interventions to the key challenges facing the South African economy. The initiative has been established in collaboration with Business and Labour. The IGP’s key strategic objectives are to:
- Establish a high-level policy forum where Government, Business and Organised Labour can regularly engage constructively with a view to improving economic policy design, policy co-ordination and coherence, joint development of mitigation measures where necessary, and enforcement and compliance of key economic policies.
- Facilitate transformation of the economy to promote industrial development, investment, competitiveness and employment creation.
- Facilitate broad-based black economic participation through targeted interventions to achieve more inclusive growth.
The Development Policy Research Unit (DPRU) will be acting as Project Managers for this programme.
A research study for the Manufacturing Engineering and Related Service Sectors: Understanding Economic Complexity in the merSETA Space with a Focus on SMMEs
The transition to higher levels of economic development is driven by the process of structural transformation, whereby a country shifts from economic activities characterised by low levels of productivity, toward high productivity economic activities. The standard evolutionary pattern involves shifting from low productivity agricultural activities toward high productivity manufacturing activities (including high productivity services activities). This pattern of structural transformation has certainly been evident in the economic development trajectories of recent industrialisers, such as Japan, Korea, and China.
While there is some debate on whether manufacturing remains the only engine for development, it is widely agreed that manufacturing remains a key element in the structural transformation process. The concept of economic complexity is drawn from a fairly recent literature examining patterns of economic growth and development, in order to provide an alternative approach to thinking about how countries undergo structural transformation. Economic complexity refers to the productive capabilities or productive knowledge embedded in an economy. Embedded within each product (or service) that a country produces, is an array of productive capabilities (or tacit knowledge) held within complex networks of economic agents that are brought together by markets. The notion of economic complexity describes the process of structural transformation as a path dependent process that involves the shift from less complex products toward an increasingly diverse and complex set of products.
Of key importance to this project is the notion that skills are one of the sets of capabilities which are important in determining the success of building economic complexity and thus growing the economy through this process of shifting production into ‘nearby’ products. Certainly, evidence has shown a strong relationship between the availability of skills and economic development.
Outputs: Papers and related articles due 2020.
Addressing Africa’s Youth Unemployment through Industries Without Smokestacks
With the advent of technology and the trend towards a completely integrated global economy, certain sectors have risen to the fore in terms of their relative importance for economic development in African countries. These industries are dubbed Industries Without Smokestacks (IWOSS): and they present an opportunity for African economies to address high and growing rates of unemployment among the youth in particular. This research, in collaboration with the Brookings Institution, focuses on assessing the extent to which youth unemployment can be addressed through employment creation in these IWOSS in South Africa. We present a methodological framework for assessing the skills required for individuals to be absorbed into these industries. While we focus specifically on four of these industries (tourism, horticulture, agro-processing, and transit trade), this framework will be readily applicable to other sectors as well.
Outputs: Brookings Working Papers and related articles due 2020.
Matching youth to jobs in urban South Africa: A randomized control trial experiment
This research activity, in conjunction with the World Bank, will take the form of a randomized control trial (RCT) that will assess the cost-effectiveness of measures that can speed up and improve job matching in the greater Johannesburg area. The study will compare two types of inefficiencies in job search: those related to transports costs, and those related to access to information to support job search. The two sources of inefficiency will be addressed with a transport subsidy, as well as a mobile phone data plan subsidy.
Outputs: Reports and related articles due 2020
The Rise of the ‘Missing Middle’ in an Emerging Economy: the Case of South Africa
Empirical evidence indicates that the South African labour market has been characterized by a U-shaped earnings growth pattern over the post-apartheid period. The bottom and top percentiles of the wage distribution have experienced higher wage growth relative to those in the middle. This pattern, or ‘missing middle’, is similar to what has been termed ‘wage polarization’ in the developed world. Research on the topic of wage polarization, however, has focused almost exclusively on industrialised countries making this work a contribution towards the characterization of wage polarization in an emerging economy. Further to this, we may expect the manifestation of and processes behind wage polarization to differ in emerging compared to industrialised economies because of key differences in their labour markets. In the literature on wage inequality in developed economies, the impact of technology on tasks and the occupational demand for labour plays a key role in explaining variation in wage growth along the distribution.
We investigate the relevance of this framework for South Africa along with three other competing and complementary explanations for a U-shaped earnings growth pattern. These include broad-based change in sectoral composition, such as the decline of manufacturing and the emerging dominance of services; skills-biased job growth in a context of high inequality in schooling quality; and, the role of labour market institutions, such as minimum wages, unions and public sector employment. We investigate the relative importance of each of these factors using a Recentered Influence Function regression on a harmonised series of South African labour force datasets merged with the Occupational Information Network (O*NET) for 2000 to 2015. Different explanations prove more or less pertinent at different portions of the distribution. Minimum wages have been key to shoring up wage growth at the bottom of the distribution. Workers in the middle of the distribution have suffered from an oversupply of similarly educated entrants, as well as, the decline of manufacturing and negative returns to the routine type work carried out by the typical worker in this portion of the distribution. Strong growth at the top end has been reinforced by skills-biased developments in all four frameworks.
Outputs: Papers and journal articles due 2020
Property Crime and Inequality: the Case of South Africa
It is well established in the literature that property crime rates increase with increasing levels of inequality. However, most research in this area comes from contexts of low-to-moderate crime and inequality rates. This paper explores whether this relationship holds in a context of extreme levels of crime and inequality, using South Africa as a case study. We use cross-sectional precinct-level property crime rates from 2011 combined with census data. We perform non-parametric, semi-parametric, and parametric analyses to uncover the nature of the property crime-inequality relationship and find strong evidence of a positive linear relationship between property crime and an interaction term of income with inequality, but strong evidence of a negative relationship between property crime and inequality on its own. This result is robust to various measures of inequality. One explanation for this finding could be that inequality acts as a signal to relatively richer residents in an area (local elites) that they are more at risk of falling victim to crime. As a consequence of this mechanism, local elites start investing in protective measures which could dampen crime rates.
- This research was presented at the 2019 Jobs & Development Conference in Washington D.C.
- Bhorat, H., Lilenstein, A., Monnakgotla, J., Thornton, A. and Van Der Zee, K. (2020). Crime And Inequality In South Africa: Non-Linear Outcomes Under Extreme Inequality. Development Policy Research Unit Working Paper 202001. DPRU, University of Cape Town.
Measuring Job Quality in South Africa
As a result of the global financial crisis in 2008/2009, South Africa lost many jobs. Although employment now exceeds pre-crisis levels, not much is known about potential changes in the quality of employment over this period. If employment growth has disproportionately been towards ‘low quality’ jobs, then that suggests an economy which is struggling to overcome the effects of the financial crisis and that is creating jobs that may be readily shed in future economic downturns. On the other hand, if more ‘high quality’ jobs have been created, then this indicates that the economic recovery has been translated into gains in job quality for workers.
Therefore, our objective in this research is to measure the quality of jobs over time and evaluate whether the quality of jobs and its distribution have changed over time. We will breakdown the results by certain demographic indicators (e.g. gender, age, educational level, and geographic location), sector and formality.
Ultimately, the research aims firstly to construct an aggregate measure of job quality (an index) that can be relatively easily updated and adapted going forward. This would allow for the continued monitoring of the overall quality of jobs on a quarterly basis as Statistics South Africa releases the Quarterly Labour Force Survey.
Funder: The Employment Promotion Programme (EPP)
Inequality and Structural Transformation
Funded by UNU-WIDER, this project aims to add to the growing body of literature exploring trends in the skill content of jobs as a function of trade and processes of structural transformation in developing countries. Specifically, each (team of) author(s) is expected to prepare an empirical case study investigating the labour market effects of structural transformation in form of measurable changes in the composition of jobs and tasks in one specific developing country, and its impact on the earnings distribution.
The Developer’s Dilemma: Structural Transformation, Inequality Dynamics, and Inclusive Growth
Funded by UNU-WIDER, this research activity will focus on the “developer’s dilemma”: How countries are to manage the trade-off between sustaining high economic growth rates that require structural change and put upward pressure on income inequality disparities whilst at the same time making growth inclusive, which entails steady or even falling inequality to maximise the rate of poverty reduction. The DPRU is contributing the South African chapter to the larger book project: https://www.wider.unu.edu/about/developer%E2%80%99s-dilemma-%E2%80%94-collaborating-researchers.
Community of Practice: Towards Resilient Futures - Phase 2:
(extension of CoP 1: Use of Fibre-rich Biomass in the Remediation of Degraded Land)
In the first phase, this CoP developed an intellectual and analytical approach to solving environmental, economic and social challenges in a holistic multi-disciplinary manner: an approach dubbed the Multidisciplinary Micro Industrial Policy Approach (MMIP). In the proposed next phase, CoP2 aims to leverage off these analytical developments. By understanding the engineering, material and environmental basis behind a frontier product and its multi-product value chains, one is better able to develop a more deliberate set of regulatory and economic policy interventions. These interventions may raise the overall economic complexity of the economy, thereby generating inclusive and sustainable economic growth. Furthermore this can be done within a framework where intensification of the feedstock production and its associated value-enhancement through manufacturing is linked to the mitigation of environmental legacies bedevilling, for e.g. post mining regions among others.
Project still at proposal stage: If approved, this project will kick-off in late 2020.
The Economics of Corruption
This proposed research activity is an extension of two completed projects: i.) Removing Corruption in State-Owned Enterprises in South Africa: Towards an Action Plan (funded by the OSF) and ii.) State Capture and the Economics of Corruption (by the Danish Embassy).
Project still at proposal stage:If approved, this project will kick-off in mid-2020.