A Multilateral Decomposition of Racial Wage Differentials in the 1994 South African Labour Market

This paper develops a new multilateral decomposition procedure for the analysis of wage differentials and applies this to the racial wage hierarchy in the South African labour market. Using microdata on male workers from the 1994 October Household survey, it is found that whites received the highest wages followed by asians, then coloureds and finally blacks. Productivity differences are shown to explain approximately two thirds of the white and black wage differentials, with the unexplained residuals attributable to discriminatory overpayment of whites and underpayment of blacks, and virtually all of the asian and coloured differentials. The results provide the basis for a discussion of postapartheid policy initiatives to tackle racial inequalities in the labour market. JEL Classification: J71, J31