A sectoral analysis of output elasticity of employment in 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.