Abstract
Labour unions have played an important role in the South African history prior to democratic elections held in 1994. Since then, their importance in mediating processes have continued and they have exercised considerable political influence. The question arises whether union power (that is the ability to raise the wages of members) ultimately leads to increases in wage inequality in South Africa. Previous findings have indicated that unions have an increasing positive effect on member’s wages, thus causing differentials between the wages union and non-union members receive. Since labour markets disparities in South Africa are at the core of wage inequality, this minor dissertation will examine the role of labour unions in causing the increases in wage gaps, and the discrimination that exist in the labour market. It is important to know the role unions play in wage determination, in order to steer specific labour policies in the right direction. Using the Cragg hurdle model and the Oaxaca-Blinder decomposition techniques with data obtained from NIDS for 2008-2015, this minor dissertation found the presence of a union wage premium. Overall the results have shown that, if individuals become members of a trade union, there tends to be an increase in the average wages they receive. This seems to indicate that union participation leads to a statistically significant improvement in wages for unionised workers only. The second most important finding is that the wage gaps between union and non-union members is mainly attributed to pure union power and not to differences in the characteristics of the workers. This suggests that the advantage enjoyed by unionised workers is largely driven by the power that unions have to increase the earnings of their members. This finding suggest that there is scope for government to reassess the role of labour unions and to adopt policies that will assist in reducing wage inequality, since an excessive inequality in earnings tends to affect people’s quality of life.
M.Com. (Development Economics)