Work in Progress
Declining Allocative Efficiency, Falling Labour Shares, and Corporate Lobbying in European Manufacturing
In recent decades advanced economies have experienced falling labour shares of income and increases in product market concentration. These trends are largely attributed to a shift in activity toward more productive firms with low labour shares. We show that while reallocation-driven productivity and labour share growth are negatively correlated, the relationship is driven by geo-industries with lower rates of negative allocative efficiency growth experiencing lower declines in the reallocation component of their labour share. Matching firm-level data from Orbis to lobbying data from the European Transparency Register, the intensity of lobbying by corporate interests in a geo-industry is shown to predict the coexistence of falling labour shares and declining allocative efficiency. Lobbying appears to work through constructing barriers to entry by first limiting productive shifts of activity and, in the long run, promoting shifts toward high-markup low-labour share firms. These effects are more pronounced in industries with increasing output concentration where lobbying is further related to the long run exit of more productive firms.
Worker mobility and productivity spillovers: an emerging market perspective
co-authored with Ayanda Hlatshwayo, Carol Newman, and John Rand
This paper uses matched employer-employee data from South Africa to examine the extent to which technology transfers between firms through the hiring of workers. Allowing for differential spillovers based on observable technology differences between sending and receiving firms, we find strong evidence for positive productivity spillovers through worker mobility. In contrast to previous studies set in more advanced economies, our results suggest that negative spillovers can occur. Firms that hire workers from less productive firms experience a decline in productivity in the following year compared with similar firms that do not hire any workers. This, we suggest, may be explained by the high skills deficit in the South African labour market, and an important mechanism for technology transfers in the future may be driven by investments in firm-level training initiatives.
Total Factor Productivity estimation using control function approaches: a new implementation applied to the South African manufacturing sector
This paper introduces a new implementation of the control function approach often used to estimate total factor productivity that allows for a more consistent convergence of production function elasticities. Using this approach, we update Kreuser and Newman's productivity estimates for the South African Manufacturing Sector using Administrative data from 2009-2017. Limited productivity growth is found for the period from 2009-2017, with the majority of variance in sectoral productivity growth attributable to allocative efficiency growth. We find that more allocatively efficient industries are generally more capital intensive and have significantly higher capital elasticities while having only slightly higher labour elasticities.
Publications
Total factor productivity in South African manufacturing firms
co-authored with Carol Newman
We use firm-level data for the period 2010-2013 to estimate total factor productivity in the South African manufacturing sector. We examine differences in the level and growth of productivity across manufacturing subsectors and examine the heterogeneity in productivity levels within sectors. We find that productivity grew in most subsectors but that there is heterogeneity across subsectors in the pace of growth. We find that firm size is positively correlated with productivity and its growth rate. We also find that there is a productivity premium associated with engaging in R&D and international trade.
Introduction to the South African Revenue Service and National Treasury Firm‐Level Panel
co-authored with Duncan Pieterse and Elizabeth Gavin
The South African Revenue Service and National Treasury Firm-Level Panel is an unbalanced panel data set created by merging several sources of administrative tax data received during 2015. The four data sources that constitute the panel are: (i) company income tax from registered firms who submit tax forms; (ii) employee data from employee income tax certificates submitted by employers; (iii) value-added tax data from registered firms; and (iv) customs records from traders. These data sets constitute a significant and unique source for the study of firm-level behaviour in post-apartheid South Africa. We review the key data sources used to construct the panel, highlight some important questions that arise as a result of panel construction, discuss the biases in the resulting data, compare key aggregates in the panel to other data sources, and provide a descriptive overview of the tax records.
An Agent-Based Simulation of the Stolper–Samuelson Effect
We demonstrate that agent-based simulations can exhibit results in line with classic macroeconomic theory. In particular, we present an agent-based simulation of an Arrow-Debreu economy that accurately exhibits the Stolper-Samuelson effect as an emergent property. Absent of a Walrasian auctioneer or any other central coordination, we let firm and consumer agents of different types interact in an open, money-driven market. Exogenous preference shocks result in price and wage shifts that are in accordance with the general equilibrium solution, not only qualitatively but also quantitatively with high accuracy. Key to this achievement are three independent measures. First, we overcome the poor input synchronization of conventional price finding heuristics of firms in agent-based models by introducing sensor prices, a novel approach to price finding that decouples information exploitation from information exploration. Second, we improve accuracy and convergence by employing exponential search as exploration algorithm. Third, we normalize prices indirectly by fixing dividends, thereby stabilizing the system’s dynamics.
Income and Price Elasticities of Demand in South Africa: An Application of the Linear Expenditure System
co-authored with Rulof Burger, Wicus Coetzee, and Niel Rankin
This paper investigates the expenditure patterns of South African households using detailed cross-sectional expenditure and price data that varies across region and time. Linear expenditure system parameter estimates are used to calculate income and price elasticities for a number of product categories at different points of the income distribution. We find substantial variation in the price and income elasticities of demand for items across the income distribution, with the bottom quartile being extremely sensitive to increases in the price of food and clothing items, and the top quartile being as sensitive as households in developed countries.
Working Papers
The guide to the CIT-IRP5 panel version 4.0
co-authored with Amina Ebrahim and Michael Kilumelume
This paper uses matched employer-employee data from South Africa to examine the extent to which technology transfers between firms through the hiring of workers. Allowing for differential spillovers based on observable technology differences between sending and receiving firms, we find strong evidence for positive productivity spillovers through worker mobility. In contrast to previous studies set in more advanced economies, our results suggest that negative spillovers can occur. Firms that hire workers from less productive firms experience a decline in productivity in the following year compared with similar firms that do not hire any workers. This, we suggest, may be explained by the high skills deficit in the South African labour market, and an important mechanism for technology transfers in the future may be driven by investments in firm-level training initiatives.
co-authored with Rulof Burger
This paper estimates the determinants and effects of latent female household bargaining power for two-adult South African households using cross-sectional data. We apply a new technique which allows us to separately identify relative gender preferences for different commodities and the effect of distribution factors on latent female bargaining power from household survey data. We find that female household members have a stronger preference for expenditure on communication, clothing, personal care and medical expenses, while male members have a stronger preference for alcohol and tobacco, food and entertainment. Additional refutability tests confirm that our two preferred distribution factors – the local sex ratio and the male’s maternal education share – affect consumption decisions via participation in household decisions and not through preferences. Estimates of gendered commodity preferences are used to investigate the effect of other candidate distribution factors on female bargaining power. The results indicate that female bargaining power tends to be higher amongst women who earn relatively more, who come from richer parental households, and who have been married for longer. Finally, our estimates of female bargaining power are used to determine its effect on labour market outcomes. Greater female bargaining power tends to increase the probability that the male will be employed, and that he will work more hours. Although bargaining power does not seem to affect the probability of female employment, employed women with more bargaining power tend to work shorter hours.
Very little work has been done on the substitutability of capital and labour at the firm level in South Africa. This paper updates Behar (2010), the first South African paper to examine this issue at a micro-level. The results confirm Behar’s broad finding – capital and labour are substitutes. This means that relative increases in the price of labour, through either higher wages or lower capital costs, encourage a substitution away from labour. The paper also finds that all types of labour, except managerial workers and unskilled production labour, are substitutes. Lastly, this paper investigates the association between firm-level estimates of own and cross-price elasticities of capital and the different type of labour, and firms’ perceptions of obstacles. These estimates find no significant relationship between the cost of financing and the elasticity of capital and the types of labour in most cases. One interpretation of this is that the cost of finance is not a constraint for firms who want to become more capital-intensive.
Graphic by John McAnn for the Mail & Gaurdian.
The elasticity of substitution and labour-displacing technical change in post-apartheid South Africa
This paper uses normalized constant elasticity of substitution production functions to estimate the elasticity of substitution and labour-augmenting technical change in South Africa over the period 1994-2012. We find elasticities of 0.6-0.9 and positive labour-augmenting technical change, which results in an increase in capital’s income share relative to labour. More broadly, we find total factor productivity (TFP) growth rates of between 1 and 2 per cent across industries, although we find no TFP growth in the mining sector. We also find that the sector with the highest TFP growth—agriculture—achieved this through shedding labour while steadily increasing output.