In South Africa, unions which played a crucial in the country's transition from apartheid, are coming under fire. Some argue that a high union wage premium, and the industrial council system are important causes of inflexibility in South Africa's labor market. The authors analyze unions' direct effect on workers' wages (including the time-honored question about whether the union wage gap is real, or reflects the fact that workers who are members of unions, differ from those who are not), and ask whether there is evidence that industrial council agreements force affected employers to pay union wages for non-union workers. They estimate that among Africans, union members earn about twenty percent more than non-members, while among whites, union workers earn ten percent more than non-union workers. They find that African non-union workers, who are covered by industrial council agreements, receive a premium of six to 10 percent
the premium is positive, but not statistically significant for whites. In addition, the union gap is smaller inside the industrial council system, than outside the system for Africans, implying that the total union premium for union members covered by an industrial council agreement, is similar to the union premium outside the industrial council system. Among Africans, the industrial council, and union wage gaps, are greatest among low-wage workers. To increase employment, policies in South Africa should focus on increasing competition among employers within sectors, rather than increasing competition among workers, by trying to reduce union power.