A Dialog on Economics

carried on by Thami Medinane, Glen Adler, and William Freund. 27 February, 1995.

This material was extracted from the new Internet forum on African Labor (AFRLABOR@acuvax.acu.edu) on 27 February, 1995.

Message-ID: <sf512e91.073@newschool.edu>
Date: Mon, 27 Feb 1995 01:44:26 -0500
From: THAMI MADINANE <MADINANE@newschool.edu>
To: AFRLABOR@acuvax.acu.edu

The neoclassial based industrial organization literature, ditto South Africa, hypothesize a positive association between market concentration (proxy of market power) and profit levels. This is the so-called structure-Conduct-Performance paradigm. In South Africa only "four" studies have sought to find this association (see, Reekie 1984; Leach 1992; Smith and Brann 1992 and Fourie and Smith 1993). All conclude that profits are high in concentrated industries.

However, all ignore the structure of the labor market (unionized versus nonunion) and all depart from a general equilibrium notion regardig the wage adjustment mechanism. My project would want to correlate industry profits with trade union power. Say, ask whether trade unions in concentrated industries capture monopoly profits as rent. In other words, do trade unions have a *negative* impact on monopoly profits. Formally, a simulteneous equation could be specified as follows:


where: CR is a vector of market structure variables correlated (positively) with PROFITS (i.e. entry-barriers, collosion and advertising, government regulation). K is a vector of industiral variables also correlated posively with PROFITS (i.e. capital intensity, capital-labor ratio, technical change) and TU is the trade union variable (determine by level of unemeployment, union power(class struggle), non-union wages and unemployment benefits).

Note, LGTU is a logistic transformation of TU (the union variable) it is derived from the simple formula:
LGTU = ln(TU/1-TU).


  1. Is there data in South Africa which is collected by trade Unions and/or government that will allow me to measure the impact of say union power (strike) on the wage rate, {w(1)-w(0)/Pc}r. The procedure is to subtract wages before strike w(o) from wages after strike w(1) divided by the consumer price index (Pc) all times r, the union power index.
  2. Can one argue based on this model that trade unions can distribute income from capitalists to workers and therefore should be be supported by the progressive government in South Africa. Note, however the union equation specfied above does not assume any automatic response by capitalists to share their profits with workers, this all depended on r (the index of class struggle).
  3. Am I making sense at all. I am interested in these issue and I am a South Africa who recently return after years in exile.

Any comments will be interesting.

New School for Social Research
Department of Economics New York.

Trade unions ought never to be attached to a political association or place themselves under its tutelage; to do so would be to deal themselves a mortal blow [Karl Marx, Hanover 1869].

From: "Glenn Adler" (029METS@muse.arts.wits.ac.za>
Organization: University of the Witwatersrand
To: AFRLABOR@acuvax.acu.edu
Date: Mon, 27 Feb 1995

Dear Thami:

I'm not really qualified to answer, but you might try to get hold of Charles Meth, who has done research on labour militance, wage rates, and aggegate shares of productivity improvements accruing to capital and labour in South Africa.

Forget about reliable statistics on strikes; trade unions have trouble keeping membership lists up to date, while the Central Statistical Services and Manpower (now Labour) Ministries are unreliable in the extreme, both in their definitions of strikes and their data-gathering techniques. A private company, Andrew Levy and Associates, keeps tabs, and they might be the best bet going.

Hope this is helpful.


Glenn Adler

Dr. Glenn Adler
Department of Sociology and Sociology of Work Unit
University of the Witwatersrand
W: 27-11-716-3946/2942
Fax: 27-11-339-8163
H: 27-11-726-1638

Date: Mon, 27 Feb 1995
From: THAMI MADINANE (MADINANE@newschool.edu>
To: AFRLABOR@acuvax.acu.edu, owner-afrlabor@acuvax.acu.edu

Dear Dr. Adler:

Thank you for you prompt and lucid note. You confirm a suspicion that initially caused me to abandon this project. I have finally resolved myself to look at long-run trends in profit rates (so-called differential profit rates) in the South African manufacturing sector from 1960-1988 and kind off extrapolate backwards the impact of trade unions by simply tracking the growth of the wage share in nonunionized sectors and square that for the unionized and divide by the consumer price index. A very clumbsy technique indeed. A novel suggestion will be helpful!

I will pursue the pointers you recommend!


New School for Social Research

Department of Economics New York.

Message-ID: (MAILQUEUE-101.950227155632.448@superbowl.und.ac.za>
From: Prof William Freund (FREUND@superbowl.und.ac.za>
To: AFRLABOR@acuvax.acu.edu
Date: Mon, 27 Feb 1995 15:56:32 +0200 SAST

Dear Thami,

There are a number of problems in your very interesting ideas that will occur to many non-economists. They boil down at one level to saying that working through the definitions before getting down to any quantitative material will be a laborious and challenging task although, only then, can the material work for you and more broadly. When I did the gold mines piece for the Gelb collection, I found, for instance that up to the mid 80s, black workers made big gains in mine wages--but they did so at the expense of white wages, which had notoriously been so many times those of blacks, not profits. So you have to look at more than just workers and profits but at a differentiated workforce. Not all SA unions are effective, moreover and they operate in different situations. The circumstances of the metalworkers, autoworkers or truck drivers are very different from those workers in the food processing industry. Unions have not been able to do much for servants or farmworkers. Then, unionisation is not the same as striking...

The most important thing I think that you could do would be to narrow the whole field down to particular big strikes, particular unions and particular wage structures and then make a very confined but convincing case study with good comparisons.

I think the current SA situation presents as well a challenge. It would be a problem simply to say that the more workers make, the happier all will be. The whole question of what makes for an effective and competitive economy looks different with an ANC government and calls for a more complex analysis. Have you chatted to Steve Gelb when he comes in to the New School from Toronto? You might find this very helpful.

Bill Freund