The impact of labour policy on productivity and wages in South Africa: a review of the literature (WP/26/02)

The impact of labour policy on productivity and wages in South Africa This paper synthesises international and South African evidence on the effects of collective bargaining, employment protection legislation (EPL) and minimum wages on productivity, wages and employment, addressing gaps in South African empirical research. International findings indicate that centralised or uncoordinated collective bargaining can be associated with lower productivity and reduced investment per worker, while highly coordinated systems may enhance productivity and economic stability. Union density and bargaining structures significantly shape outcomes. In South Africa, evidence points to a union wage premium that is larger at lower pay levels, with mixed trends over time and limited wage compression. There is evidence that bargaining councils may negatively affect firm survival in some sectors. International evidence on EPL suggests heterogeneous effects on productivity and wages depending on firm size, technology, workforce skills and employment contracts; stricter EPL reduces job turnover and firm entry, with ambiguous productivity effects. Evidence on minimum wages shows consistent wage increases with modest employment effects internationally, though productivity impacts vary. In South Africa, minimum wages have raised wages in low-paid sectors, sometimes at the cost of employment, underscoring trade-offs in policy design and enforcement.