Few countries have higher wage inequality than South Africa, where wages of African and white workers differ by a factor of five. Using survey data collected in 1993, the authors analyze the complex effect of unions on this wage gap. Among male African workers in the bottom decile of the wage distribution, union membership was associated with wages that were 145% higher than those of comparable nonunion workers, and among those in the top decile the differential was 19%. Regression estimates also indicate that returns to observed productive characteristics of workers, such as education and experience, were larger for nonunion than union workers. If the large union relative wage effect were cut in half, the authors estimate that employment of African youth, age 16-29, would increase by two percentage points, and their labor force participation rate would also increase substantially.