How tariffs on manufacturing affect employment in the services sector

South Africa faces unemployment and deindustrialisation. Manufacturing tariff cuts in the 1990s were expected to reallocate workers into services. Our research finds the opposite: municipalities with larger tariff cuts experienced weaker employment growth in manufacturing and services. Wages did not adjust – the shock was absorbed through job losses. Negative spillovers from manufacturing constrained services from absorbing displaced workers; they either exited the labour force or migrated to other municipalities.