Wages and Wage Inequality during the COVID-19 Pandemic in South Africa

Because the COVID-19 pandemic affected the supply, demand, and nature of work, the implications for wage inequality are ex ante unclear. In South Africa, a country characterised by extreme income inequality driven by wage inequality, these effects are not yet fully understood due to the unavailability of adequate data. This paper makes use of representative and individual-level survey data not available in the public domain provided by Statistics South Africa, to analyse the evolution of the level and nature of wage inequality and its drivers in the country from 2019 to 2022. We first show that missing wage data in the survey is large and non-randomly distributed, justifying imputation. We show that the imputations in the public data are of poor quality and result in an underestimation of wages across the distribution, but parametrically adjusting the raw data for outliers and missing data yields reliable estimates. We find that pre-pandemic wage inequality was extremely high and stable. At the pandemic’s onset, real wages mechanically rose primarily due to a composition effect induced by a regressive distribution of job loss. 70 percent of this rise at the mean is explained by this effect, while changes in the returns to characteristics played a relatively muted role. Not considering this former effect leads to misinterpretations of wage dynamics. Composition-controlled indices suggest the pandemic increased wage inequality up to 8 percent or 5 Gini points at its onset, but this was temporary. As the pandemic progressed and employment partially recovered, wage reductions toward pre- pandemic levels stemmed more from lasting changes in the returns to various characteristics than a more similar worker profile, indicative of a persistence of effects on the structure of the labour market.