Wage dynamics, trade-related wage premia and productivity spillovers : evidence from the South African manufacturing sector

Thesis (PhD)--Stellenbosch University, 2022.ENGLISH ABSTRACT: South Africa continues to grapple with low economic growth, unemployment and inequality, making it crucial to gain further insights into wage inequality which is the largest component of income inequality. This thesis uses the South African Revenue Service and National Treasury tax administration linked employer–employee panel dataset to investigate wage dynamics, trade-related wage premia and productivity spillovers from foreign-connected firms in the South African manufacturing sector. Firstly, this thesis is the first to look at wage growth, taking into account unobserved worker and firm heterogeneity in South Africa. Over time the manufacturing sector has become more productive, while shedding low-skilled, labour-intensive jobs, with increasing wage inequality. As such, this thesis conducts a variance decomposition of wage levels and growth and finds that worker fixed effects dominate both wage levels and growth. However, for low-income employees’ wage levels, the firm fixed effect is relatively more important, showing that firm characteristics should not be neglected when analysing less-skilled workers’ wage differentials. Turning to wage growth, worker fixed effects are found to explain a higher proportion of the change in the wage for low-income workers compared to wage levels. Further, the importance of firm fixed effects in explaining the variation in wage levels increases with firm size. Secondly, this thesis extends the South African literature by estimating the wage premium for simultaneously being a foreign-connected firm and an exporter and/or importer (i.e. a hybrid). This thesis is also the first to empirically estimate the wage premium by differentiating between pure exporters/importers and firms that are both importers and exporters, as well as trading firms and domestically/foreign-owned foreign-connected firms. Given the increasing wage inequality in the sector, it is important to understand which types of firms pay the highest wage premia. There is evidence of hybrid firms paying the highest wage premium. As such, it is the combination of exposure to foreign markets through imported inputs, export sales and foreign direct investment that results in the highest wage premia. Lastly, this thesis is also the first to explore productivity spillovers from foreign-connected firms to local firms using the South African Revenue Service and National Treasury tax administration linked employer–employee panel dataset. One of the ways in which local firms learn from foreign-connected firms is by hiring workers with experience gained in foreign-connected firms. Therefore, understanding the extent to which such spillovers occur in the manufacturing sector is important for knowledge sharing between firms in the sector. There is strong evidence of productivity spillovers from foreign-connected firms to non-foreign-connected firms. These spillovers arise mainly from foreign-connected firms above the median firm size and are received mostly by small local firms. Further, the results suggest that spillovers mainly occur through high-wage foreign-connected firm workers, highlighting the importance of skills.AFRIKAANSE OPSOMMING: Suid-Afrika worstel steeds met lae ekonomiese groei, werkloosheid en ongelykheid, wat die belangrikheid onderstreep om nog insigte te bekom oor loonongelykheid; die is die grootste komponent van inkomste-ongelykheid. Hierdie tesis maak van die Suid-Afrikaanse Inkomstediens en die Nasionale Tesourie se belastingadministrasie gekoppelde werkgewer-werknemer paneeldata gebruik om loondinamika, handelsverwante loonpremies en produktiwiteitsoorlope van ondernemings met buitelandse verbintenisse in die Suid-Afrikaanse vervaardigingsektor te ondersoek. Eerstens – die tesis is die eerste wat loongroei, met inagneming van onwaargeneemde werker- en firma-heterogeniteit in Suid–Afrika, onder die loep te plaas. Met verloop van tyd het die vervaardigingsektor meer produktief geword, terwyl daar van laag-geskoolde, arbeidsintensiewe werksgeleenthede ontslae geraak is, met toenemende loonongelykheid. As sulks onderneem hierdie tesis ’n wisselingsontleding van loonvlakke en -groei en word daar bevind dat werker-vasgestelde effekte loonvlakke, sowel as groei, oorheers. Vir die loonvlakke van lae-inkomste-werknemers, is die onderneming se vasgestelde effek egter relatief belangriker, wat toon dat onderneming-eienskappe nie verontagsaam moet word met die ontleding van minder geskoolde werknemers se loonverskille nie. Wat loongroei betref, is bevind dat werknemers se vasgestelde effekte ’n hoer deel van die verandering in die loon van werknemers met lae inkomste verklaar in vergelyking met loonvlakke. Voorts groei die belangrikheid van onderneming-vasgestelde effekte (wat die wisseling in loonvlakke toelig) algaande die onderneming uitbrei. Tweedens – dié tesis verbreed die Suid-Afrikaanse literatuur deurdat dit ’n skatting lewer van die loonpremie om gelyktydig 'n buitelandse onderneming en 'n uitvoerder en/of invoerder (dit wil sê 'n hibried) te wees. Hierdie tesis is ook die eerste om die loonpremie empiries te skat deur tussen suiwer uitvoerders/invoerders en ondernemings te onderskei, wat sowel invoerders as uitvoerders is, sowel as handelsondernemings en plaaslike/buitelands beheerde en ondernemings met buitelandse verbintenisse. Gegewe die toenemende loonongelykheid in die sektor, is dit belangrik om te begryp watter soorte ondernemings die hoogste loonpremies betaal. Daar is bewyse dat hibriede ondernemings die hoogste loonpremie betaal. As sulks is dit die kombinasie van blootstelling aan buitelandse markte deur ingevoerde insette, uitvoerverkope en direkte buitelandse beleggings wat die hoogste loonpremie meebring. Ten slotte, hierdie proefskrif is ook die eerste om produktiwiteitsoorlope van ondernemings met buitelandse verbintenisse na plaaslike ondernemings, wat gebruik maak van die Suid-Afrikaanse Inkomstediens en Nastionale Tesourie se belastingadministrasie-gekoppelde werkgewer–werknemer paneeldatastel, te ondersoek. Een van die wyses waarop plaaslike ondernemings by buitelandse ondernemings kennis opdoen, is deur werknemers in diens te neem met ondervinding wat opgedoen is in ondernemings met buitelandse verbintenisse. Daarom is dit belangrik om te begryp in watter mate sulke oorlope in die vervaardigingsektor voorkom, met die oog op die deel van kennis tussen ondernemings in die sektor. Daar is stewige bewyse van produktiwiteitsoorlope van ondernemings met buitelandse verbintenisse, na ondernemings wat nie met die buiteland verbind is nie. Hierdie oorlope kom hoofsaaklik voor by ondernemings met buitelandse verbintenisse, wat bo die grootte van die gemiddelde onderneming is, en word meestal deur klein plaaslike ondernemings ontvang. Die resultate dui voorts daarop dat oorlope die belangrikheid van vaardighede benadruk en hoofsaaklik voorkom weens werkers wat hoe lone ontvang en wat buitelands verbind is.Doctora