8. What Is the Nature of the Output-Employment-Unemployment Nexus in South Africa? Evidence from Various Approaches to Okun’s Law

How has the intensity of aggregate and sectorial output growth to create jobs evolved? Evidence shows that the output-employment coefficients vary over time and was the lowest post-financial crisis. GDP growth above 2 per cent is associated with the highest growth in QES employment and, in particular, private sector employment growth. On the other hand, the doubling of output growth to 4 per cent and above results in a significant decline in the unemployment rate. At a sectorial level, evidence indicates that the most output growth employment intensity is generated by the construction sector followed by the transport, trade and finance sectors. For these sectors, a per cent growth in their output resulted in employment growth of between 0.7 per cent and 1 per cent in these sectors for the period 2000Q1 to 2016Q4.

The unemployment-employment indicate that an increase in employment growth does lead to a decline in the unemployment rate. But the unemployment rate moves less than one-for-one with employment growth and this worsened post-recession. The estimates indicate that a 1 percentage change (increase) in employment resulted in a −0.1 percentage point decline in the unemployment rate compared to −0.4 percentage points decline pre-2007. The estimated delta coefficient of −0.4 percentage points raises the policy implications of whether it is sufficient to absorb new entrants into the labour market. More so because an increase in employment increases the returns to job search, which induces workers to enter the labour force and increase in the labour participation ratio. This means that policy interventions aimed at enhancing the labour absorption rate must focus the construction, transport, trade and finance, manufacturing and mining sectors. These measures will contribute to the objectives of maximum output and employment growth.