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Productivity, Wages and Employment in South Africa’s Manufacturing Sector, 1970-2002

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  • Jeremy Wakeford

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    (University of Cape Town)

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    Abstract

    This paper investigates the relationship between labour productivity, average real wages and employment in South Africa’s manufacturing sector, using cointegrating VAR and VECM econometric techniques. A long-run equilibrium relationship was found between real wages and productivity, with an elasticity of 0,38 indicating that productivity has grown more rapidly than wages. However, the econometric tests proved to be highly sensitive to specification and sample period. Nevertheless, the main result is consistent with the finding that labour’s share of gross output has been shrinking over the past three decades, which has negative implications for income distribution. These trends may plausibly be explained by capital intensification and possibly the adoption of labour-saving technology. The implication is that growth in the manufacturing sector cannot realistically be relied upon to create significantly more jobs for South Africa’s millions of unemployed. Policy-makers are urged to consider alternative strategies which promote local economy and protect key labour-intensive sectors.

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    File URL: http://www.dpru.uct.ac.za/sites/default/files/image_tool/images/36/DPRU%20WP04-085.pdf
    File Function: First version, 2004
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    Bibliographic Info

    Paper provided by University of Cape Town, Development Policy Research Unit in its series Working Papers with number 04085.

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    Length: 35 pages
    Date of creation: Mar 2004
    Date of revision:
    Publication status: Published in Working Paper Series by the Development Policy Research Unit, March 2004, pages 1-35
    Handle: RePEc:ctw:wpaper:04085

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    Related research

    Keywords: South Africa: labour productivity; real wages and employment; VAR and VECM econometric techniques;

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    1. Pesaran, M.H. & Shin, Y., 1995. "An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis," Cambridge Working Papers in Economics 9514, Faculty of Economics, University of Cambridge.
    2. Deirdre N. McCloskey & Stephen T. Ziliak, 1996. "The Standard Error of Regressions," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 97-114, March.
    3. Charlotte Toit & Reneéa Koekemoer, 2003. "A Labour Model For South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 71(1), pages 49-76, 03.
    4. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    5. Jeremy Wakeford, 2004. "The productivity-wage relationship in South Africa: an empirical investigation," Development Southern Africa, Taylor & Francis Journals, vol. 21(1), pages 109-132.
    6. L Edwards, 2001. "Globalisation And The Skills Bias Of Occupational Employment In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 69(1), pages 40-71, 03.
    7. J D Lewis, 2002. "Promoting Growth and Employment in South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 70(4), pages 338-358, 03.
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