Original Research

A sectoral analysis of output elasticity of employment in South Africa

Marvellous Ngundu, Harold Ngalawa
South African Journal of Economic and Management Sciences | Vol 26, No 1 | a4825 | DOI: https://doi.org/10.4102/sajems.v26i1.4825 | © 2023 Marvellous Ngundu, Harold Ngalawa | This work is licensed under CC Attribution 4.0
Submitted: 09 September 2022 | Published: 28 August 2023

About the author(s)

Marvellous Ngundu, School of Accounting, Economics, and Finance, College of Law and Management Studies, University of KwaZulu-Natal, Durban; and Macroeconomics Research Unit, School of Accounting, Economics, and Finance, University of KwaZulu-Natal, Durban, South Africa
Harold Ngalawa, School of Accounting, Economics, and Finance, College of Law and Management Studies, University of KwaZulu-Natal, Durban; and Macroeconomics Research Unit, School of Accounting, Economics, and Finance, University of KwaZulu-Natal, Durban, South Africa

Abstract

Background: Despite considerable efforts by the South African government, such as the Youth Employment Service (YES) programme, unemployment remains an enigma.

Aim: The study seeks to explore the responsiveness of sectoral employment to changes in the sectoral output in South Africa.

Setting: We focus on the agriculture and informal sectors, with the understanding that a large portion (93%) of South Africa’s unemployed population does not have tertiary education qualifications. Thus, the current South Africa’s unemployment phenomenon appears to necessitate the development of policies that will create inclusive skill-based jobs. The study’s hypothesis is theoretically underpinned by Okun’s law, according to which output growth is considered as a primary labour demand stimulus in the economy. When the labour demand function is co-integrated, Okun’s law is assumed to hold; otherwise, ‘jobless growth’ applies.

Method: The findings from the Engle-Granger two-step testing procedure on the double-log linear labour demand function over the 1993–2018 period show evidence of jobless growth in the formal agricultural sector, while the informal agriculture and informal non-agriculture sectors demonstrated features of Okun’s law.

Results: Notably, the authors found a fairly elastic (1.35%) employment intensity in output growth in the non-agriculture informal sector, with an equilibrium adjustment rate of 86% within a year, ceteris paribus.

Conclusion: The findings suggest that, while South Africa’s formal agriculture is no longer labour-intensive, due to agricultural mechanisation, economic policy consciousness in the informal sector, including agri-entrepreneurship, is necessary to create inclusive mass employment in South Africa.

Contribution: This study delves into the informal sector, which has been frequently overlooked as a potential solution to South Africa’s unemployment crisis.


Keywords

agriculture; Okun’s law; employment; jobless growth; informal sector; South Africa.

JEL Codes

J21: Labor Force and Employment, Size, and Structure; O11: Macroeconomic Analyses of Economic Development; O14: Industrialization • Manufacturing and Service Industries • Choice of Technology; O17: Formal and Informal Sectors • Shadow Economy • Institutional Arrangements

Sustainable Development Goal

Goal 8: Decent work and economic growth

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