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How do wage subsidies support industrial decentralization? I am busy reading a paper that says, "The industrial decentralization policy in South Africa made some inroads, but disintegrated once wage subsidies were removed after 1994." I think it might be referring to the creation of separate homelands:

The logical conclusion of this process came in the 1960s and 1970s, when the apartheid government ‘‘elevated’’ the status of the African reserves to 10 putatively self-governing homelands, some of which were declared independent states. These homelands were thus set upwith their own assemblies, government departments, rights to confer citizenship, etc. The idea of ‘‘separate development’’ was that they would also have their own economies. But, given that these reserves comprised only 13% of the country_s land area, were often geographically isolated, and had terrible infrastructure, this was not plausible. Poorly conceptualized investments in agricultural irrigation schemes benefited mainly a few score white development experts and consulting firms. The industrial decentralization policy made some inroads, but disintegrated once wage subsidies were removed after 1994. The main source of formal employment within the homelands was no doubt the public service itself. The homelands thus had virtually no tax base, and so had to rely almost entirely on transfers from the apartheid government

Is it because wage subsidies provide stability for employment in a independent industry?

  • Let me see if I understand correctly. The government subsidized wages (WS) to industries that were located not in the centralized white areas, but in the 10 newly formed African homelands that were geographically isolated (no infrastructure?). Then, when WS ended, these jobs located in the rural 10 homelands disappeared, because the main source of employment was the government subsidized jobs. You want to know, how WS makes decentralized industry possible? (only offer WS to industries not located in that area) and If WS offers employment stablity? – user1873 Jun 21 '14 at 13:20
  • @user1873: I want to know how WS makes decentralized industry possible. My hypothesis is that WS contributes to a lower unemployment rate and more employment stability, which allows independent industries to operate successfully. You mention 'location' - is decentralization not more to do with control/regulation in general than with regulation for a specific area? – ahorn Jun 21 '14 at 17:45
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    Yes, when the tax payers subsidize (certain industries or certain geographical areas) by providing inflated wages for people who work in those industries/locations it necessarily lowers unemployment and makes those jobs more stable. Those "independent" industries possibly can continue to operate with taxpayers money. – user1873 Jun 21 '14 at 22:57
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It was having success because the government was making it profitable or at least providing incentive to create the infrastructure in places outside of the central cities. It is not that wage subsidies in general do this but rather how the subsidies were instituted that incentivised business to build out side of the main cities in areas that previously were under and undeveloped.

The same thing can and does happen in the reverse when governments invest in and develop businesses or provide tax incentives to private industry develop in certain cities. This has the effect of moving jobs out of smaller rural areas and building the industrial base of the targeted cities. Many times when the subsidies go away the businesses are unable to sustain the business and either move out of the more expensive cities or go out of business all together.

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