Watts happening to work? The labour market effects of South Africa’s electricity crisis

Abstract

Frequent electricity outages threaten to impede the benefits of expanded access achieved by many developing countries in recent decades. A large literature documents these negative effects, however almost none consider labour market effects. This paper merges labour force survey microdata with high-frequency electricity supply and demand data to provide the first descriptive and causal estimates of the relationships between outages and labour market outcomes in South Africa, a country characterized by frequent, severe outages referred to as load shedding. We reveal negative associations with both employment and working hours, with the former being more pronounced. Both are not evident for low outage levels but increase with outage intensity. We document significant heterogeneity across firm sizes and industries, highlighting the vulnerability of workers in small firms. Using a Difference-in-Differences design, we exploit variation induced by a unique mitigation policy in Cape Town to show that outage mitigation significantly increases both employment and working hours, but more so the former, consistent with our descriptive estimates. We do not find heterogeneous employment effects by firm size, but highlight meaningful working hours effects for workers in small firms only, again highlighting their vulnerability. No evidence of heterogeneity across industries is found, and causal effects on hourly wages or monthly earnings could not be credibly identified. Overall, this study provides evidence of the negative labour market effects of power outages in developing countries, particularly for workers in small firms, on both the extensive and intensive margins.