Abstract
How has the intensity of aggregate and sectorial output growth to create jobs evolved? Evidence shows that the output-employment coefficients vary over time and was the lowest post-financial crisis. GDP growth above 2 per cent is associated with the highest growth in QES employment and, in particular, private sector employment growth. On the other hand, the doubling of output growth to 4 per cent and above results in a significant decline in the unemployment rate. At a sectorial level, evidence indicates that the most output growth employment intensity is generated by the construction sector followed by the transport, trade and finance sectors. For these sectors, a per cent growth in their output resulted in employment growth of between 0.7 per cent and 1 per cent in these sectors for the period 2000Q1 to 2016Q4.
The unemployment-employment indicate that an increase in employment growth does lead to a decline in the unemployment rate. But the unemployment rate moves less than one-for-one with employment growth and this worsened post-recession. The estimates indicate that a 1 percentage change (increase) in employment resulted in a −0.1 percentage point decline in the unemployment rate compared to −0.4 percentage points decline pre-2007. The estimated delta coefficient of −0.4 percentage points raises the policy implications of whether it is sufficient to absorb new entrants into the labour market. More so because an increase in employment increases the returns to job search, which induces workers to enter the labour force and increase in the labour participation ratio. This means that policy interventions aimed at enhancing the labour absorption rate must focus the construction, transport, trade and finance, manufacturing and mining sectors. These measures will contribute to the objectives of maximum output and employment growth.
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Notes
- 1.
They move in different directions.
- 2.
It is noteworthy that the increased contribution of the mining sector in the 1980s coincided with that of the electricity sector in line with the discoveries and surge in global commodity prices in the early 1980s. We explore the role of commodity and asset price booms and busts in later chapters of this book.
- 3.
These aspects are explored in later chapters of this book.
- 4.
Data for the QLFS employment is only available from 2008Q1.
- 5.
The puzzle is why inflation has been persistently low at a time when estimates place the economy at or near full employment. Hence, the argument that the Phillips curve has weakened (flattened) post-financial crisis as inflation and nominal wages have tended to change relatively little as the unemployment rate has fallen considerably. Thus Brainard (2017a) argues that with the Phillips curve appearing to be a less reliable guidepost than it has been in the past, the anchoring role of inflation expectations and lowering financial imbalances remains critically important.
- 6.
In this case Ball et al. (2013) state that “potential output” is synonymous with long-run output and the “natural rate” refers to the long-run unemployment. The long-run level of employment and the natural rate of unemployment are determined by the size of the labour force and frictions in the labour market.
- 7.
The issue of “jobless recoveries” and “export-led jobless growth” are addressed in later chapters of this book.
- 8.
- 9.
Asset prices such as house and equity prices. Furthermore, Ndou et al. (2017) show that the economic sectors reflect heterogeneous responses to the REER appreciation shock. The manufacturing sector is highly sensitive to REER movements and declines following the REER appreciation shock. This reflects the dominating impact between the expenditure switching effects and the production costs hypothesis. These effects may be associated with trade exposure of the manufacturing sector to low cost imports and competitors as opposed the dominance of the benefits of reduced input costs of imported input materials in this sector.
- 10.
The policy implication is that credit and financial booms in general are not growth-enhancing.
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Gumata, N., Ndou, E. (2019). What Is the Nature of the Output-Employment-Unemployment Nexus in South Africa? Evidence from Various Approaches to Okun’s Law. 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_8
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