The effects of public enterprise privatization and deregulation on the labor market in South Africa

In this study, I examine the consequences of public enterprise reforms, privatization and deregulation on employment, wages, real sales and measures of productivity in South Africa. The study employs a conventional labor market model (suggested in work by, inter alia, Brown and Medoff 1988, Litchenberg and Siegel 1992, and Haskel and Szymanski 1993) that explains the effects on employment, wages, real sales and measures of productivity when government-owned enterprises are reformed or privatized, and regulatory reforms are introduced. Using data from 1980–1996 and time series/cross sectional tests for change in objectives and increased competition, four principal results emerge for the labor market. First, employment fell following commercialization and deregulation. Second, both commercialization and deregulation appear to be associated with increases, and not decreases, in wages per worker. Third, real sales rose following commercialization and declined when increased competition caused by deregulation was introduced. Finally, commercialization is associated with improved productivity, perhaps due to efficiency effects of commercial management culture within the enterprise. Meanwhile, deregulation is associated with reduced productivity, perhaps due to adverse competition effects.