Transport costs can potentially drive a wedge between the employer’s wage costs and the
worker’s take-home pay. Transport costs can either push up the wage and thus
unemployment or reduce living standards and contribute to inequality. In this paper, we
investigate the relationship between transport costs and wages in South Africa using the
National Income Dynamics Study. On average, higher transport costs are associated with
higher wages, and we find some evidence for causality after accounting for possible
endogeneity. The relationship differs across the income distribution, with workers at the
bottom of the distribution finding it difficult to pass on transport costs in full. Indeed,
transport costs can devour up to 24 percent of a worker’s wage at the lower end of the
income distribution, but only a small portion of the income at the higher end. As such,
transport cost contribute to wage inequality.