The Impact Of Oil Prices On Sectorial Employment In South Africa

Abstract

Failure to create more jobs is a problem faced by many African countries, and South Africa is not spared. Evidence concerning the effect of oil prices on employment is lacking. The paper examines the impact of factor prices (oil prices) on sectorial employment in South Africa over the period 1994 to 2012 using quarterly data. The study employs panel data analysis techniques to split the sectorial effects. The use of panel data econometric techniques to control for unobserved heterogeneity is essential to uncover the result, which is completely hidden in OLS estimates. By adding a dummy of each sector, pure effect of oil prices are estimated through controlling for unobserved heterogeneity. The effect of oil prices is felt most in the finance sector, followed by construction, then trade - all significant at 1%. Since oil price is positively related to employment in these sectors, it implies that the monetary policy in South Africa is accommodative as given a wage rate, increase in the price of oil leads to increase in price level and thus decrease in real wage.