Investment, labor demand, and political conflict in South Africa

• Main Author: Heintz, James S
• Language: ENG
• Published: ScholarWorks@UMass Amherst 2001
• Subjects: Labor economics|Political science|Labor relations
• Online Access: https://scholarworks.umass.edu/dissertations/AAI3012137

This dissertation develops theoretical and econometric models of investment and labor demand in South Africa in order to shed light on the decline in the rate of fixed investment beginning in the mid 1970s, the nature of business compliance with racebased labor market policies, and the emergence of “jobless growth” in a period of heightened political and social conflict. I develop a model of investment and choice of factor intensity that incorporates roles for both bargained wages and political unrest. Building from this theoretical base, the dissertation investigates the hypothesis that social conflict depresses investment. An index of political unrest in South Africa is created using data on strike activity, prison populations, and detentions under the apartheid security laws. Estimates using a panel data set show significant effects on investment of the after-tax rate of profits, an accelerator term, and the index of political unrest. Increases in political instability explain the largest portion of the decline in the rate of investment in South Africa over this period. The following chapter explores whether political unrest contributes to non-wage “hassle costs” of employing labor that can lead, in a labor surplus/capital-poor economy, to higher levels of capital-intensity. Econometric estimates show significant negative effects of higher average product wages and greater political unrest on the labor-capital ratio. The fifth chapter creates a model of business compliance with apartheid labor market policies—in particular, job reservations and controls over urban influx. Apartheid labor market policies are modeled as a multiple-player prisoner's dilemma in which the incentive to defect on the part of individual firms (by employing more low-wage black workers than apartheid policies allowed) threatens the collective benefits of the racist policies in providing a disciplined labor force at low cost. Renewable contractual relationships and conformist behavior provide the incentives to comply with the apartheid regulations. The model's predictions—that the level of non-compliance climbs as the ability of the state to police the cartel and maintain incentives falls—are shown to be reflected in the historical record.