For more than a decade, South Africa hasexperienced falling labor force participation rates whilemaintaining relatively high unemployment rates, particularlyamong its youth. This paper examines the role of labor costsfrom the perspectives of employers and workers by combininginformation from national accounts and household surveys. Tobetter understand the employer’s perspective, we calculatethe labor costs and set them in relation to productivity,thereby deriving unit labor costs. To analyze the worker’sperspective, we disentangle the tax-wedge and furtherwork-related costs borne by workers. The results show thatlabor costs in the South African economy increaseddisproportionally relative to productivity. This is largelydue to labor cost growth in the manufacturing and industrysector. An international comparison of unit labor costsshows that other countries with similar unit labor costlevels have not registered such a strong increase over thesame period. To identify causes for the increase in laborcosts, we decompose the determinants using household dataand follow the development of work-related costs over time.We compare the results for South Africa to a set ofcomparator countries and identify unionization, specificsectors and skill mismatch as particularly influential forSouth Africa. The results show that stagnating productivitymay be associated with a lack of highly qualified workers,also in comparison with benchmark countries. This note wasprepared as a background note to the South Africa SystematicCountry Diagnostic.
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