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

University of Cape Town Development Policy Research Unit Working Paper No. 11/145

17 Pages Posted: 4 Dec 2012

See all articles by H. Bhorat

H. Bhorat

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

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 1, 2011

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 labour inspectors per capita is used as a proxy for enforcement, whilst 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.

Due to the potential simultaneity between enforcement and compliance, the number of labour 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 labour inspectors is found to be insignificant in determining non-compliance.

Keywords: Minimum Wage, Enforcement, Compliance, Depth of Violation, South Africa

Suggested Citation

Bhorat, Haroon I. and Kanbur, Ravi and Mayet, Natasha, Estimating the Causal Effect of Enforcement on Minimum Wage Compliance : The Case of South Africa (November 1, 2011). University of Cape Town Development Policy Research Unit Working Paper No. 11/145 . Available at SSRN: https://ssrn.com/abstract=2184233 or http://dx.doi.org/10.2139/ssrn.2184233

Haroon I. Bhorat (Contact Author)

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Ravi Kanbur

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Natasha Mayet

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

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