AN OVERVIEW OF EMPLOYMENT AND GROWTH POLICIES IN SOUTH AFRICA

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ASIA AND THE PACIFIC

Renewed interest in the relationship between growth and employment in the Asia and Pacific region has intensified following rural-urban migration that fuelled the growth of industry (Lewis 1954). While some countries in the region, such as Indonesia or the Philippines, have experienced relatively high unemployment levels, this region has for many years been the most economically dynamic region. The fact that it remains one of the top performers globally, even during the times of global economic crisis, raises the question whether growth has been jobless or not.
A study by Islam and Nazara (2000) investigated the evolution of the employment intensity of output growth in Indonesia’s major economic sectors between 1977 and 1996. To analyse the responsiveness of the labour market to changes in macroeconomic conditions (as represented by output growth), both descriptive and econometric approaches were used. Results based on the descriptive method of computing the arc elasticity of employment showed that the overall employment elasticity value was 0.49. In addition, there were large fluctuations in each of the five major sectors being investigated, with some sectors even experiencing negative elasticity. The study concluded that the results derived using this approach would be difficult to use for policy formulation or even for monitoring purposes, since these fluctuations would make it difficult to analyse the sectoral composition of employment elasticity.
Subsequently, the study undertook an alternative econometric estimation method that produced a more stable series of sectoral employment elasticities. The results showed that the overall employment elasticity for Indonesia during the 1977-1996 period was 0.66 and had been stable since the end of the 1970s. Therefore, the estimates varied from a low of 0.49 (non-econometric method) to a high of 0.66 (econometric estimation method).
At a sectoral level, the results showed that the employment elasticity in agriculture was in excess of unity for the entire period of the analysis. In other words, a 1 percentage growth in agricultural output implied a more than 1 percentage increase in employment in the sector. The results further indicated that during the late 1970s and early 1990s, employment elasticity in this sector declined briefly, but recovered again in 1995 and 1996.
In the trade sector, the results of the study revealed a constant decline in the employment elasticity during the period under review, from 1.11 in 1977 to 0.79 in 1996. The study attributed the decline to the fact that this sector is home to the bulk of the informal sector and therefore acted as the employer of last resort, since this sector receives workers who cannot be absorbed by the formal sector. The growing number of workers in the formal sector at the expense of the informal sectors like trade was thus associated with declining employment elasticity in the latter. A similar argument was found to apply in the services sector, particularly from 1992 onwards. With regard to the industry sector, the results of the study showed relatively stable employment elasticity for the whole period, averaging 0.60.
In another study by Hanusch (2012), the author explored the net effect of growth on job creation by estimating the Okun’s Law coefficient for eight East Asian countries between 2001 and 2011. He mentioned the fact that East Asia was not previously identified as a priority region for conducting a study on the relationship between employment and growth. This was mainly because it was a known fact that the mobilising factors of production, including labour, were the key drivers of the ‘East Asian miracle’ (Krugman, 1994; Kim and Lawrence, 1994; Mankiw, 1995; Young, 1992). As a result, unemployment in the region had always been considerably low.
Recent studies have, however, have shown interest in the Okun relationship between unemployment and growth in East Asia. This has been facilitated by the argument of the Lewis transformation, which concluded that the rural-urban migration which gave effect to the growth of the urban industry (Lewis, 1954) might have ended in many East Asian countries. Furthermore, it was argued that although for many years East Asia was considered to be an economically dynamic region with high growth, even during the recent global crisis, it recently experienced elevated unemployment levels. As a result, concerns were raised about whether or not growth was jobless.

READ Interest rate liberalisation and economic growth

LATIN AMERICA AND THE CARIBBEAN

The 2008/09 financial crisis renewed concerns about unemployment and job creation in developing countries. According to the International Labour Organization, more than a million people joined the ranks of the unemployed in Latin America and the Caribbean between the first quarter of 2008 and the first quarter of 2009 (ILO, 2009).
Navarro (2009) investigated the dynamics of aggregate employment in Latin America from a macroeconomic perspective, based on annual data from 1980 to 2008 covering 15 Latin American countries4. The study conducted a trend analysis on annual GDP, employment and real wages, which revealed that for two years before the 2008/09 recession and after the last year of negative GDP growth, these three variables were highly correlated in the region’s 15 largest countries. In other words, both employment and wages behaved in a similar fashion in relation to GDP in the years before and after the recession. The study thus generalised that the dynamic of real wages was related to that of labour productivity, and that falling real wages tended to cushion a fall in employment during a recession. In order to explore this relationship further, the study employed an econometric analysis that sought to estimate dynamic labour demand, based on the information from 15 Latin American countries for the period 1980-2008.
Results based on a correlation matrix indicated a positive and statistically significant correlation between changes in employment and changes in GDP, while the correlation of employment with the other variables was found not to be statistically significant enough to be analysed. The results of the study further indicated that, as predicted by theory and in line with the literature, the employment-output elasticity was positive and significant. The short- term employment-output elasticity coefficients were found to be between 0.32 and 0.34, while the long-term coefficients were between 0.33 and 0.43. The study also reported that these coefficients were somewhat lower than those reported in another study by Weller (2000), which used the same database, but which only went up to 1998. It was thus concluded that even though the coefficients from both studies are not strictly comparable, given their specifications, the results still indicated a tendency for the responsiveness of employment to changes in GDP to diminish over time. The study therefore proposed that the positive employment impact of policies to stimulate aggregate demand should be enhanced during times of crisis.

CHAPTER ONE INTRODUCTION
1.1. THE SITUATION IN SOUTH AFRICA
1.2. AN OVERVIEW OF EMPLOYMENT AND GROWTH POLICIES IN SOUTH AFRICA
1.3. OBJECTIVES OF THE STUDY.
1.4. METHODOLOGY AND OUTLINE OF THE STUDY
CHAPTER TWO THEORETICAL BACKGROUND OF THE EMPLOYMENT AND GROWTH RELATIONSHIP
2.1. INTRODUCTION
2.2. OKUN’S LAW.
2.3. THE BUSINESS CYCLE THEORY
2.4. THE PRODUCTION FUNCTION THEORY
2.5. EMPLOYMENT INTENSITY OF GROWTH .
2.6. SUMMARY AND CONCLUSION
CHAPTER THREE REVIEW OF EMPIRICAL STUDIES ON GROWTH AND EMPLOYMENT.
3.1. INTRODUCTION
3.2. DEVELOPED ECONOMIES
3.3. TRANSITION ECONOMIES
3.4. ASIA AND THE PACIFIC
3.5. LATIN AMERICA AND THE CARIBBEAN
3.6. AFRICA AND THE MIDDLE EAST
3.8. SUMMARY AND CONCLUSION..
CHAPTER FOUR MODELLING SECTORAL EMPLOYMENT ELASTICITIES.
4.1. INTRODUCTION
4.2. THE LABOUR DEMAND MODE
4.3. METHODOLOGY
4.4. ARC ELASTICITY OF EMPLOYMENT APPROACH
4.5. ECONOMETRIC APPROACH
4.6. DATA SOURCES AND DESCRIPTION
4.7. SUMMARY AND CONCLUSION
CHAPTER FIVE EMPIRICAL EVIDENCE: RESULTS AND INTERPRETATION
CHAPTER SIX CONCLUSION AND POLICY IMPLICATIONS
REFERENCES.