Dieter von Fintel

Low Quality Education as a Poverty Trap

The weak quality of education received by most poor children in South Africa places them in permanent disadvantage relative to those attending the mainly more affluent and better performing schools. This document draws from a large number of studies undertaken for a major project and summarises this evidence, which illustrating that low quality schools act as a poverty trap.

A History With Evidence: Income inequality in the Dutch Cape Colony

ABSTRACT The arrival of European settlers at the Cape in 1652 marked the beginning of what would become an extremely unequal society, with ramifications into modern-day South Africa. In this paper, we measure income inequality at three different points over the first century of Dutch rule at the Cape. What emerges from the study is a society characterised by severe inequality, with a relatively poor farming population combined with pockets of wealth. The inequality is driven largely by wheat and, especially, wine production, which gave rise to an elite. Historical evidence supports our findings: Amongst others, the imposition of sumptuary laws in 1755 is closely correlated with a more segmented elite which includes both alcohol merchants and (wine) farmers. We compare these measures to those of other regions and time-periods in history. Although the exact level of inequality is determined to a large extent by our assumptions, the Cape Colony registers one of the highest Gini-coefficients in pre-industrial societies. This provides some support to verify the Engerman-Sokoloff hypothesis that initial levels of high inequality would give rise to growth-debilitating institutions, resulting in higher inequality and underdevelopment.

The wealth of Cape Colony widows : inheritance laws and investment responses following male death in the 17th and 18th centuries

ABSTRACT Losing a household member is usually negatively associated with welfare, especially if that person is a breadwinner. Coping methods include disposal of assets to generate cash flow, while other households increase their labour supply. This paper considers a specific case in a pre-industrial society, presenting evidence where male mortality was associated with distinct benefits for widows. In the Cape Colony (during the Dutch East India Company occupation), Roman Dutch inheritance laws favoured widows, who were then able to set up households independently of their children. Their sizable inheritances (relative to other heirs) enabled investment in production assets with otherwise prohibitively high fixed costs (in particularly slave labour and vineyards) and resulted in divestment from other non-productive assets. While the mortality shock would presumably have had negative impacts on income and subsistence crop levels, this was not the case in the Cape: instead, reconstructed asset portfolios set widows up for productive, slave intensive farming and subsequent status and affluence.

Institutional wage-setting, labour demand and labour supply: Causal estimates from a South African pseudo-panel

Unemployment in South Africa has been attributed to multiple causes. Wages have grown faster than productivity to reduce labour demand; demographic shifts have increased labour supply. This paper uses a district pseudo-panel, constructed from household surveys, to estimate the elasticity of labour demand, labour supply and unemployment with respect to wages. The goal is to assess whether hiring decisions are more sensitive to increases in wages of low paid workers than high paid workers, and whether wage growth prompts entry into the labour market. Each of these channels combine to result in the positive causal effect of wage growth on unemployment. Furthermore, the research investigates whether these effects are dominated by districts in which unionization rates are high, and where workers are employed by large firms. In so doing, we quantify the role that institutional wage-setting has in raising wages (which in turn contribute to unemployment). The results illustrate that wages of middle to highly paid workers – as opposed to low paid workers - lead to depressed local labour demand and higher local unemployment; these effects can be explained by cross-district unionization rates and the distribution of large firms. Bargaining arrangements correspond closely to the spatial wage distribution; in turn, a large part of the impact that wage growth has on labour market outcomes is determined by these wage-setting institutions.ABSTRACT Unemployment in South Africa has multiple causes. This article uses a district pseudo-panel to estimate the elasticity of labour demand, labour supply and unemployment with respect to wages. We assess whether hiring decisions are more sensitive to increases in wages of low-paid workers than high-paid workers, and whether wage growth prompts entry into the labour market. These channels combine to result in the positive causal effect of wage growth on unemployment. The research investigates whether these effects are dominated by districts in which unionisation rates are high and employment is concentrated in large firms. Wage growth of middle-paid to highly paid workers – as opposed to low-paid workers – reduces local labour demand and raises local unemployment. Bargaining arrangements correspond closely to the spatial wage distribution; in turn, a large part of the impact that wage growth has on labour market outcomes is determined by these wage-setting institutions.