Determinants of the demand for regular farm labour in South Africa, 1960-2002

This paper estimates long-run price (wage) elasticities of demand for regular farm labour in South Africa using both Ordinary Least Squares (OLS) regression and a Two-stage Least Squares (2SLS) simultaneous-equation model for the period 1960-2002. Both models include a piecewise interactive slope dummy variable with 1991 as the threshold year to reflect South African (SA) commercial farmers’ expectations that farm labour costs would increase as new labour legislation was introduced from the early 1990s onwards. The long-run price (wage) elasticity of demand for regular farm labour in South Africa during 1960-1990 was estimated as -0.25 for OLS and -0.23 for 2SLS regression, respectively. For the period 1991-2002, this elasticity estimate rose to -1.32 and -1.34 for OLS and 2SLS regression, respectively. These results suggest that a marked structural decline in the demand for regular labour has occurred since 1991 that raises questions about the appropriateness of labour laws and minimum wage legislation that have increased the cost of regular farm labour in South Africa.