South Africa without apartheid: Estimates from general equilibrium simulations

Abstract A general equilibrium model of the South African economy in the 1980s is constructed, focusing on the labour‐market distortions created by legal and customary restrictions on nonwhite labour mobility. The model is static and calibrated to the data of 1980; its simplified representation of the economy incorporates five production sectors, two race categories, two skill levels, and five kinds of labour‐market constraints. Three counter‐factual simulations are conducted: The labour‐market constraints are relaxed marginally, one at a time. Such change has little impact on either the level of GDP or its distribution. The constraints are derived that would be preferred by different white sub‐groups – were each sub‐group to choose the various constraints so as to maximize its own income. No such group has uneconomic motive in keeping so many Blacks in the reserves. Beyond that, interests diverge. Urban capital would like to expand the entry of nonwhites into the cities and into skilled jobs. White farmers, white mining labour, and white urban unskilled labour would like to keep nonwhites out of the cities and out of skilled jobs. White urban skilled labour stands between these groups. The outcome of perfectly free labour markets is examined, under the assumption that the education level of nonwhites permits them to move either slowly or rapidly into the newly accessible skilled jobs. GDP rises from five to ten per cent, and dramatic income redistribution is achieved. Some nonwhites experience wage increases up to one half; skilled whites are not much affected, and even the direction of the impact on them is unclear; profits increase by as much as one fifth; and the incomes of white farmers and unskilled white labourers my fall by more than one half. The measured changes owing to a transition to free labour markets, large as they are, represent no more than lower‐bound estimates of the effects of apartheid since the simulations deal only with the racial restraints on labour markets and do not contemplate possible racial redistribution of the ownership of land, physical capital, or human capital.