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American Economic Journal: Applied Economics: Vol. 4 No. 3 (July 2012)

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High Unemployment Yet Few Small Firms: The Role of Centralized Bargaining in South Africa

Article Citation

Magruder, Jeremy R. 2012. "High Unemployment Yet Few Small Firms: The Role of Centralized Bargaining in South Africa." American Economic Journal: Applied Economics, 4(3): 138-66.

DOI: 10.1257/app.4.3.138

Abstract

South Africa has very high unemployment, yet few adults work informally in small firms. This paper tests whether centralized bargaining, by which unionized large firms extend arbitration agreements to nonunionized smaller firms, contributes to this problem. While local labor market characteristics influence the location of these agreements, their coverage is spatially discontinuous, allowing identification by spatial regression discontinuity. Centralized bargaining agreements are found to decrease employment in an industry by 8-13 percent, with losses concentrated among small firms. These effects are not explained by resettlement to uncovered areas, and are robust to a wide variety of controls for unobserved heterogeneity. (JEL J52, K31, L25, O14, O15)

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Authors

Magruder, Jeremy R. (U CA, Berkeley)

JEL Classifications

J52: Dispute Resolution: Strikes, Arbitration, and Mediation; Collective Bargaining
K31: Labor Law
L25: Firm Performance: Size, Diversification, and Scope
O14: Industrialization; Manufacturing and Service Industries; Choice of Technology
O15: Economic Development: Human Resources; Human Development; Income Distribution; Migration

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