Estimating the Causal Effect of Enforcement on Minimum Wage Compliance: The Case of South Africa

16 Pages Posted: 20 Oct 2012

See all articles by Ravi Kanbur

Ravi Kanbur

Cornell University; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Natasha Mayet

University of Cape Town (UCT) - Development Policy Research Unit

Multiple version iconThere are 2 versions of this paper

Date Written: November 2012

Abstract

This paper attempts to estimate the causal effect of government enforcement on compliance with minimum wages in South Africa, a country where considerable non‐compliance exists. The number of labor inspectors per capita is used as a proxy for enforcement, while non‐compliance is measured using an index of violation that measures both the proportion of individuals violated, as well as the average depth of individual violation. Because of the potential simultaneity between enforcement and compliance, the number of labor inspectors is instrumented by the number of non‐inspectors. The results suggest that there are a variety of factors impacting on violation, including firm‐level, sectoral, and spatial characteristics. One of the key determinants of violation is found to be the local unemployment rate. However, the number of labor inspectors is found to be insignificant in determining non‐compliance.

Suggested Citation

Kanbur, Ravi and Mayet, Natasha, Estimating the Causal Effect of Enforcement on Minimum Wage Compliance: The Case of South Africa (November 2012). Review of Development Economics, Vol. 16, Issue 4, pp. 608-623, 2012. Available at SSRN: https://ssrn.com/abstract=2164058 or http://dx.doi.org/10.1111/rode.12007

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Natasha Mayet

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