Abstract
The McMillan and Rodrik (2011) labour productivity decomposition into “within” and “structural change” components shows that the “structural change” component has made negative contributions for the period 1990 to 2015 for the aggregate economy as opposed to the “within” component. The “structural change” component has been growth reducing for the South African economy. At a sector level, the “within” component seems to have been the largest contributor especially for the (i) agricultural sector; (ii) wholesale and retail trade, catering and accommodation; and (iii) finance, insurance, real estate and business service sectors. The rapid growth in the “within” productivity component has more than offset the negative contribution from the “structural change” component, especially for the two latter sectors.
The policy implications of the findings in this chapter are that the recent growth accelerations during the 2000s based on rapid “within-sector” labour productivity growth were also largely driven from the demand side of the economy as opposed to rapid industrialisation. Increased levels of market deregulation and various policy reforms aligned with the process of opening up the South African economy into a globalised world have benefitted the “within” component of labour productivity at the expense of the “structural change” component. The process of deregulation and globalisation has been highly beneficial to intra-sector productivity, but this was at the expense of structural changes within these sectors. Such trends manifest themselves in, for example, high concentration levels of very few firms and economic players within sectors with detrimental effects on competition, price formation, contribution to growth and employment.
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Notes
- 1.
The growth rates are shown in Fig. 10.12 in the Appendix.
- 2.
McMillan and Rodrik (2011) define the productivity gaps as the differences in average labour productivity.
- 3.
Based on the Cobb-Douglas production function specification where the average productivity multiplied by the labour share is the marginal productivity of labour.
- 4.
The role of deregulation in the agricultural sector and export-oriented policies is explored in detail in later chapters of this book.
- 5.
These conclusions nonetheless do not downplay the role of commodity prices booms and busts, and exchange rates as was shown in earlier chapters for the mining sector, which in part are outcomes of open economies and a globalised world economy. The role of commodity price booms and busts and the exchange rate on the agricultural sector is explored in later chapters of this book.
- 6.
We explore the impact of trade liberalisation on the agricultural sector in later chapters.
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Appendix
Appendix
Sector labour productivity growth rates. (Note: EG&W = Electricity, gas and water; TS&C = Transport, storage and communication; WRC&A = Wholesale and retail trade, catering and accommodation sectors; TS&C = Transport, storage and communication; and FIRE&B = finance, insurance, real estate and business service sectors. Source: Productivity SA and authors’ calculations)
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Gumata, N., Ndou, E. (2019). The Impact of Structural Change on the South African Economy: Evidence from the McMillan and Rodrik (2011) Labour Productivity Decomposition Approach. In: Accelerated Land Reform, Mining, Growth, Unemployment and Inequality in South Africa. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-30884-1_10
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