An analysis of the short and long-run effects of economic growth on employment in South Africa

Abstract

In any economy, employment growth at faster rates than economic growth is essential in reducing unemployment levels and facilitating economic development. Employment creation is one of the main cornerstones of any economy. Globally new employment has been difficult to achieve, especially within a low economic growth environment. High levels of sustained unemployment relate to structural weaknesses in an economy. South Africa has one of the highest rates of unemployment in the world of more than 27 percent, with associated low economic growth and relatively high levels of inflation and interest rates. The objective of this research was to analyse the status quo regarding employment and the relationship with economic growth measured as growth in gross domestic product (GDP) in South Africa. The study used econometric time-series methods to test for a long and short-run relationship between employment and economic growth by utilising quarterly data from 2002 to 2016. Variables included in the study consisted of employment, real GDP, inflation rate and the repo rate. The study found long-run cointegrating relationships amongst the variables. The analysis indicated that South Africa has experienced an employment coefficient of 0.96. In terms of Granger-causality analysis, the study found that economic growth and repo rate cause changes in employment. Recommendations were also made regarding solutions for job creation in South Africa which should have an impact on future policy formulation.