The Impact of Privatisation and Regulatory Reform on Wage Premia in State-Owned Enterprises in South Africa

Whilst much has been said about the employment effects of the privatisation of state-owned enterprises in South Africa, the debate has largely overlooked the impact of these events on the wage levels of those workers that retain their jobs in the restructuring process. This paper estimates earnings functions for workers in the South African economy to determine the impact of these changes. The results suggest that those workers that do retain their jobs in the restructuring process will be better off initially. This is because the state-owned firm will shift to become a partially private firm that operates in a highly regulated industry structure with limited competition. This enables the firm to earn abnormal profits and unionised labour is able to share in some of these profits. However, uncertainty at the individual level over whether they will be one of the lucky workers to retain their post will ensure that most workers will oppose any restructuring. The paper also demonstrates that any further liberalisation of the previously state-owned sector to introduce greater competition will make those workers worse off as their premium is eroded along with the abnormal profits. This applies as much to union members and non-union members. The result is that workers can be expected to oppose any further restructuring of these former state-owned firms after they have been initially reformed.