Differences in hourly earnings across Cape Town, Johannesburg and Durban.

Abstract

Researchers have long noticed the existence of wage differentials across metropolitan areas and researchers have documented wage differentials across metropolitan areas to be due to differences in the employment and industrial structures of regional economies. This paper aims to examine differences in hourly earnings across Johannesburg, Durban and Cape Town, which are the largest metropolitan areas of South Africa. In doing, the study uses pooled cross-sectional data from the Labour Force Survey, which is a household-based sample survey collected by Statistics South Africa and data is pooled from the years 2005 to 2007. The study estimates a standard wage equation through Ordinary Least Squares and by controlling for metro dummy variables only; Results suggest there are significant differences in hourly earnings across the three metropolitan areas. However by including observable characteristics, results suggest there are no significant differences in hourly earnings between Johannesburg and Cape Town whilst difference in earnings between Johannesburg and Durban still persist. The study uses the Oaxaca Blinder decomposition to decompose the mean difference in hourly earnings into a part that is explained by observable characteristics and into part that is unexplained. Oaxaca Blinder decomposition results suggest that the mean difference in hourly earnings between Cape Town and Johannesburg is 13.8 percent, the mean difference in hourly earnings between Johannesburg and Durban is 26.9 percent and the mean difference in hourly earnings between Cape Town and Durban is 44.4 percent. Overall, differences in earnings across the three respective metropolitan areas can be attributed to both varying returns to observable characteristics and discrimination.