Every year South Africa celebrates Human Rights Day, which marks the 1960 Sharpeville massacre, when police opened fire on people demonstrating against laws passed by the United Nations. The day invites reflection on how apartheid deprived millions of South Africans of their rights and opportunities. The passbooks have run out. Job reservation laws have ended. Gone are racially disparate pay programs. But tax records and payroll data as recently as 2018 tell a more troubling story: The labor market distortions that apartheid's economic laws created are still measurably present today, in the same sectors and regions where those laws were implemented.
For decades, these laws determined who could apply for skilled jobs, who could join a trade union, and how wages would be set in industries. The system was detailed, well thought out, and implemented at the level of individual sectors and specific geographical districts through ministerial orders published in official government gazettes. Research shows that those decrees left an economic imprint that has not been fully erased by neither the end of apartheid nor the reforms of the 30 years that followed.
To understand why, it helps to look at how the system actually operates. Under the Industrial Reconciliation Act of 1956, white trade unions deliberately bargained to set higher minimum wages to exclude black workers from competing. Some job categories were legally reserved for white workers through ministerial decree. Black workers who wanted to change employers needed approval from a government bureau; People who move into a city without permission can be convicted of a criminal offence. By 1967, approximately 700,000 people per year were being prosecuted under these mobility laws.
That system left a paper trail. For 40 years, every order, every wage determination, every job reservation was published in official government gazettes, which were the formal, legally binding record of who could work where, and who could not. Covering the period 2012 to 2018, cross-referenced with modern payroll and tax data from the National Treasury and the South African Revenue Service, those gazettes make it possible to draw a direct line between job reservation orders issued in the 1960s and the labor market in the same region today.
What that paper trail reveals, when mapped onto contemporary economic data, is a labor market that has never fully righted itself.
Exactly the same thing emerges when those historical decrees are mapped against contemporary payroll and tax records. In the sectors and regions where those orders were most heavily enforced – which included sectors ranging from furniture manufacturing to textiles to metal foundries, and 278 of South Africa's 369 magisterial districts at the peak of their enforcement – misallocation of labor is 4% to 14% higher today than in comparable sectors exposed to those restrictions.
Some workers remain employed in low-productivity firms, while more productive firms struggle to hire the workers they need.
This gap persists even 30 years after apartheid reform. In sectors where the Labor Minister issued explicit job reservation orders, the most targeted and deliberate exclusion, misallocation was 8% higher than in unaffected sectors. In the broader picture, the minimum wage system emerges as the widest channel, its distortions extending to more sectors and regions than any other restriction.
Yet one of the most surprising findings transcends all these differences. Companies in historically affected regions and districts are not, on average, systematically less productive. This suggests that the legacy of apartheid persists in a specific way: workers are not optimally distributed across these firms.
Some workers remain employed in low-productivity firms, while more productive firms struggle to hire the workers they need. Even after formal restrictions are lifted and companies adapt, workers may still face barriers that prevent them from getting to where they will be most productive.
The departure of skilled white workers after 1994 might seem a plausible explanation, but the data rule it out as the driver here. Companies appear to have adjusted to that change. The problem is not with the companies; The point is that workers cannot reach the most productive ones. The result is an economy that operates below its potential, not because companies are inefficient, but because labor cannot reach its most productive uses.
South Africa faces labor market challenges, including high unemployment and uneven regional development. While many factors contribute to these outcomes, evidence suggests that historical labor market institutions can still shape how labor markets work today.
Human Rights Day is not just a moment of remembrance. It is an invitation to look honestly at what those rights violations actually did, not just to individuals, but to the economic structures in which they were embedded. Government gazettes codifying apartheid's labor rules were formally discontinued in 1994, although some, like the laws passed, had been made impractical by popular resistance years earlier.
The distortions they created were not there. Dealing with them is not a task of historical sentiment. This means reviewing collective bargaining structures that perpetuate historic wage compression, investing in transportation and housing infrastructure that still limit workers' access to economic opportunities, and targeting skills programs in areas and districts that research identifies as most distorted. This is one of the more concrete steps available to increase South Africa's economic potential. The distortion is measurable. This means, in theory, it can be fixed.
Written by Talent Nesongano, Econ3x3
This article is based on the Southern Africa – Towards Inclusive Economic Development (SA-TIED) Working Paper: “The Legacy of Apartheid: Misallocation of Labor and Firm Productivity.” It was first published in the Sunday Times.