An Empirical Examination of the Impact of Public Enterprise Reform on the South African Labour Market

This article examines the impact of public enterprise reform on employment, wages, and measures of productivity in South Africa. Most analyses of the process of enterprise reform have, to date, focused mainly on the agency problem between managers and owners, changes in management organisation, and incentives. However, these studies have largely ignored the labour market. Accordingly, we use a conventional labour market model (Brown and Medoff 1988, Litchenberg and Siegel 1992, and Haskel and Szymanski 1993) to examine the effects on employment, wages, and measures of productivity when government-owned enterprises in South Africa were commercialised and regulatory reforms introduced. Using data from 1980-1996 and time series/cross sectional tests for changes in objectives and increased competition, three principal results emerge for the labour market. First, employment fell following commercialisation and deregulation. Second, both commercialisation and deregulation appear to be associated with increases, and not decreases, in wages per worker. Finally, commercialisation is linked to improved productivity, perhaps due to the efficiency effects of a commercial management culture within the enterprise. By contrast, deregulation is correlated with reduced productivity, perhaps due to adverse competition effects.