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MINING COMMUNITIES IN SOUTH AFRICA SAW BIGGEST INCOME GAINS AFTER APARTHEID

The incomes of marginalised black communities in South Africa improved faster in the post-apartheid era in those parts of the country with higher initial exposure to the mining industry. That is the central finding of research by Paulo Bastos and Nicolas Bottan, to be presented at the Royal Economic Society''s annual conference in Brighton in March 2016.

Their study shows that although black workers could not become members of legally registered labour unions under apartheid, once those restrictions disappeared, they were able to benefit from mining''s relatively high degree of unionisation.

After the end of apartheid, there was still high inequality between communities that were inside or outside the self-governing territories set aside for black inhabitants. Fifteen years later, this gap remained, but incomes had converged at different speeds across different communities of the former homelands.

To understand this, the study looks at the mining industry, one of South Africa''s leading sectors. Despite high profits during apartheid, black miners earned far less than their white counterparts (around 18 Rand per month, compared with 400 Rand for whites). Because they did not legally count as workers, black miners could not join unions.

Post-1996, reforms in the new South African constitution were introduced to let workers bargain for a higher share of the profits. Union membership has always been high in the mining sector – over 70% in both 1996 and 2011. The study finds that this right to strike and fair working conditions meant that communities where more people were miners were able to gain the most and have their incomes rise quicker than other communities.

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A large body of evidence has documented how bad economic institutions can stunt development. But can a bad legacy be turned into a relatively more prosperous future?

This research explores how reforms at the end of apartheid spurred development for marginalised communities. Just after the end of apartheid, in October 1996, communities located just inside and just outside the former self-governing territories set
aside for black inhabitants were highly unequal in terms of income per capita. Fifteen years later, the gaps remained sizeable. But incomes converged at a different pace across local communities of the former homelands. What explains this difference?

The researchers argue that the different rates of income growth for black communities in the former homelands may be in part explained by the share of people in each community who were employed by the mining industry.

Although South Africa is a leading mineral producer and exporter, the industry has traditionally been controlled by a few privately owned mining investment houses.

Moreover, in the apartheid era, the mining industry was characterised by a highly uneven distribution of income: profits were high but wages for black workers were low.

In the gold mining industry in 1972, for example, African miners earned monthly salaries of about 18 Rands, while white miners made 400 Rands per month. Black workers were not included in the legal definition of employee and hence could not become members of legally registered labour unions.

After the end of apartheid, reforms created scope for workers to bargain collectively for a larger share of industry profits. The bill of rights of the 1996 constitution not only prohibited the state from discrimination on any grounds but also included explicit reforms to labour laws, notably by imposing fair labour practices, and the right to strike.

The mining industry had the highest degree of unionisation among all economic sectors, with unionisation rates of over 70% both in 1996 and 2011, and hence was in a particularly strong position to benefit from these reforms.

Examining relative changes between 1996 and 2011, this study finds that incomes converged faster among marginalised communities with higher initial exposure to the mining industry. These results accord with standard bargaining theory in which the
dismantling of coercive institutions improves the negotiating position of unionised workers in the mining industry.

''Resource rents, coercion, and local development: Evidence from post-apartheid South Africa'' – Paulo Bastos and Nicolas Bottan