South Africa lost more than 890,000 jobs, but saw an increase in the
number of skilled workers from 1989 to 1999. We argue that this is the
consequence of well-documented acute apartheid-era distortions which led
to a current coordination failure where (i) firms are locked into a mostly skillintensive
technology where they have very little demand for semi-skilled
and unskilled labour, and (ii) there are too few semi-skilled and skilled
blacks. It follows that the average level of blacks’ human capital is too low
for firms to adopt a technology which makes intensive use of less skilled
workers in the production process. A firm cannot unilaterally change
technology because current skilled (mostly white) workers would lose and
move to other firms. All of this points to a missing market for semi-skilled
workers. Wealth redistribution and public investments in both the quantity
and quality of education are shown to be Pareto-improving.
