Testing Okun’s Law in South Africa

Abstract

The purpose of this study is to see whether Okun's coefficient exists in South Africa. The study analysed yearly data from 1995 to 2020. The study used an error correction model (ECM) to assess the short-run relationship between the variables under investigation. The granger causality test is also used to examine the variables' short-run causality. According to the study's results, there is a negative and significant relationship between unemployment and GDP in the short run. As a result, Okun's Law applies in South Africa. The Granger causality test findings reveal that GDP Granger causes unemployment in South Africa. As a result, the study recommends that policymakers prioritize balancing labour-intensive and capital-intensive jobs, as well as encouraging entrepreneurship and sufficient education and training.