 |
This paper investigates how ethnic diversity amongst black South Africans affects their labour market outcomes in the post-Apartheid era. We find that ethnic diversity has a positive impact on the employment rate of the black South Africans, and it only affects ethnic groups with relatively large population size. To address the endogeneity of ethnic composition, we explore the location of historical "black homelands" and argue that districts equally distant to multiple homelands are eth- nically diverse. In our instrumental variable regressions, a one standard deviation increase in ethnic diversity index increases employment rate by 3 (5) percentage point in 1996 (2001), which is around 8% (13%) of the average employment rate. We also disentangle the two components in the ethnic di- versity index and show that the variation in our diversity index comes from the dispersion of group size. We then propose a model of a coordination game to explain these findings. A more ethnically diverse place has less dispersion of group size, which implies a higher rate of inter-ethnic communica- tion needed to maintain the overall level of social connection. As inter-ethnic communication requires more skills than intra-ethnic connection, people in ethnically diverse districts are motivated to invest more in social skills to be able to communicate with those outside their own group. The acquisition of these social skills makes them better equipped for the labour market. The key mechanism of the model is verified by both numerical simulation and empirical evidence.
