The Determinants of Earnings Inequalities: Panel data evidence from South Africa

 

This paper explores the relative importance of individual ability and labour market institutions, including public sector wage setting and trade unions, in determining earnings differences across different types of employment. To do this the study uses the KwaZulu-Natal Income Dynamics Study data from South Africa, which show extremely large average differentials across different types of employment. The results suggest that human capital and individual ability explain much of the earnings differentials within the private sector, including the union premium but cannot explain the large premiums for public sector workers. The study shows that public sector premium exists only for those moving into the public sector.