Real wages, employment and macroeconomic policy in a structuralist model for South Africa

Abstract

It is now commonplace to argue that in South Africa, like many developing countries, higher wages will lower employment. This paper shows that it is difficult to extricate the relationship between wages, employment and output from the macropolicy environment. Dynamic computable general equilibrium simulations show that the employment effects of nominal wage increases depends on induced monetary and fiscal policy when there is monetary 'policy dominance'. While wage-led growth is inefficient, increasing the wages of unskilled workers can improve the distribution of income, when the induced changes are neutralised.

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