This paper analyzes the determinants of high unemployment in South Africa by studying
labor market dynamics using individual level panel data from the Quarterly Labor Force
Survey. While prior work experience and gender are found to be important determinants of
the job-finding rate, education attainment and race are important determinants of the job-exit
rate. Using stock-flow equations, counterfactual exercises are conducted to quantify the role
of these different transition rates on unemployment. The paper also explores the contribution
of unemployment towards inequality. Reducing unemployment is found to be important for
reducing inequality – estimates suggest that a 10 percentage point reduction in
unemployment lowers the Gini coefficient by 3 percent. Achieving a similar reduction solely
through transfers would require a 40 percent increase in government transfers.