Abstract
M.Com. (Development Economics)
Trade liberalisation effects on wage inequality and unemployment in South Africa from 1994 to 2007 are analysed in this paper. This is done using the two-step estimation framework, which allows for the decomposition of the effects of trade policy on wage distribution according to individual worker-specific characteristic premiums, industry-specific skills premiums, and industry-specific wage premiums and employment changes. In contrast to what the theory predicts, South Africa experienced an increase in wage inequality. This effect has not mainly taken place through changes in industry-specific wage premiums. Rather, the effect has taken place mainly through changes in industry-specific skills premiums and unemployment. These components (industry-specific skills premiums and unemployment) are therefore regarded as fundamental when it comes to policy formulation.