Foundation essay: Our foundation essays are longer than usual and take a wider look at a key issue affecting society.

The rise of public sector employment in South Africa has a much greater potential import than the private sector for the future trajectory of the economy’s employment path. We find that a key new facet of the South African labour market is an estimated wage wedge between unionised public sector workers and other formal non-agricultural workers in the labour market.

The total number of public sector employments increased from 2.16 million in 2008 to 2.69 million at the end of 2014. Public sector employment’s share of total jobs had risen to 17.5% by the end of 2014, up from 14.5% at the beginning of 2008. The growth was driven by employment in national, provincial as well as local government.

The fastest period of public sector employment growth was during 2009, immediately following the global financial crises. This suggests that the state possibly acted as an unintended creator of jobs during a period of extreme labour market distress.

Who is being hired?

The large contributors to public sector job growth are occupations that fall under the category of unskilled workers. These include sweepers, farmhands and labourers, helpers and cleaners, construction and maintenance labourers, and garbage collectors.

The other major contributors are medium-skilled workers. These are police and traffic officers, institution and home-based care workers, other protective services, prison guards, technikon teacher training, cooks and childcare workers.

Higher-skilled jobs such as primary and secondary school teachers, finance and administrative managers and legislators have also contributed to public sector job growth.

It would seem that the government’s Expanded Public Works Program is an important driver of public sector job creation. Launched in 2004, it focuses on providing income relief through creating jobs for the unemployed and unskilled that involve socially useful activities.

The programme creates jobs through government funded infrastructure projects. It does this through non-profit organisations and community work programs, as well as public environment and culture programs. As such, much of the public sector job growth relates to the construction industry, the protection and safety sector, public sanitation and personal care industries.

More representative

The public sector has clearly been able to transform its labour force at a faster pace than the private sector. It has hired a higher proportion of both women and African workers in the sector, groups that were discriminated against under apartheid.

Africans make up 77% of public sector employment compared with 66% the private sector. Females make up 52% of the workforce, compared to 44% in the private sector.

In terms of the skills profile, the public sector is more skills intensive. Almost 45% of all public sector employees fall into the top three occupational categories, compared to 26% in the private sector. Both sectors, however, have a similar proportion of unskilled workers. This indicates that private sector workers are concentrated in the medium-skilled occupations.

Interestingly, the proportion of the two most skills-intensive occupations did not change in the public sector between 2008 and 2013, but the proportion of professionals in the private sector increased by 25%. This is consistent with the shift towards more skilled workers.

Growth in public sector jobs was driven by the medium-skilled occupation of service workers, as well as in elementary occupations. The share of medium-skilled workers grew by 31% and and elementary occupations by 23%.

Again, this may point to the state being able to absorb excess unskilled and medium-skilled labour at times of economic and labour market distress.

Bargaining power

Another feature of the public sector labour market is the relatively higher rate of unionisation, which is often associated with a wage premium. Union members made up almost 70% (1.4 million workers) of all public sector’s formal workers in 2014, up from 55% in 1997 (834,000 workers).

This compares with the private sector where union density declined from 36% in 1997 to 24% in 2013. Unlike in the public sector too, the absolute number of private sector unionised workers has remained fairly constant.

The rise in public sector unionisation is commensurate with the increase in public sector employment. Public sector trade unions now dominate union membership in South Africa.

Powerful labour unions are often associated with creating a wage premium for their members. This is based on their ability to mobilise industrial action and negotiate in favour of their members during times of wage negotiations. There is extensive literature on the union wage gap in South Africa, but slightly fewer studies on the bargaining council premium.

Taking account of this, we found that:

• union members outside of the bargaining council system earned a premium of 7.04%; and

• those members of private and public bargaining councils not belonging to unions earned an 8.97% and 10.5% premium over non-union workers outside of the bargaining council system.

The total estimated premium to union workers within the public bargaining council stands at 22%. Therefore, there is evidence that belonging to either unions or bargaining councils is associated with statistically significant wage premia. Furthermore unions may negotiate at the plant level for additional gains for their members within the bargaining council system.

When comparing wage levels, both the median and mean wages of the public sector are significantly higher than private sector’s. The real monthly wage of an average public sector employee is R11,668 (US$1209) compared to R7,822 (US$811) for an average private sector worker. In addition, public sector wages have less dispersion than private sector wages, indicating a lower level of wage inequality within the public sector.

Most importantly though, non-unionized public sector workers are concentrated in elementary occupations (30%), service and sales occupations (16%), and technical and associate professional occupations (16%). While it remains uncertain, the non-unionised workers in the first two occupational groups are likely to be those employed under the public works program.

More nuanced labour market view

Ultimately though, these wage distributions suggest that, at least in terms of earnings, a dual labour market may indeed be prevalent in the South African labour market. Previous models of segmentation have commonly referred to the distinction between the employed and the unemployed. More recently the formal and informal sector has been used as the key identifying segmentation markers.

We suggest a nuance to South Africa’s segmented labour market.

In particular it would appear that the distinction between public and private sector, in terms of earnings and employment, is a new form of segmentation which has evolved in the post-apartheid South African labour market.

Our econometric results show that for unionised workers, the public sector wage premium is 20.7%. In particular, for government workers in the public sector, the wage premium within the group of workers belonging to a union, is 23.5%, whereas there is no significant wage premium for employees of state owned enterprises.

Given the rising membership of public sector unions, together with the growing political influence of these unions, these results possibly allude to the role played by unions in driving higher returns for their members in the post-2000 period. This pattern of wage returns potentially suggests segmentation between unionised public sector workers versus all other formal, non-agricultural workers.

In one conception, we could argue that the post-2000 period has generated new labour elite in the labour market, namely the unionised public sector employee.

This article is an extract from a working paper, which is part of a collaboration between UNU-WIDER, the Brookings Institution and the Development Policy Research Unit (DPRU) at the University of Cape Town on Understanding the African Lions: Growth Traps and Opportunities in Six Dominant African Economies.

Since the publication of the working paper Kavisha Pillay has resigned from the Development Policy Research Unit (DPRU) at the University of Cape Town

Written by Haroon Bhorat, Professor of Economics and Director of the Development Policy Research Unit, University of Cape Town; Karmen Naidoo, Senior Researcher, Development Policy Research Unit, University of Cape Town, and Kavisha Pillay, Junior Researcher, Development Policy Research Unit, University of Cape Town

This article was originally published on The Conversation. Read the original article.