An empirical analysis of the impact of employment, wages and inflation on consumer spending in a developing country, South Africa

Real income, rising inflation and low levels of formal employment have a significant impact on consumers. This study has the objective to assess the impact of real income, inflation, productivity and low levels of employment on consumer in South Africa, which is a proxy for developing countries. This study is important due to the high levels of unemployment in South Africa and the fact that consumers are under immense pressure also due to rising inflation, low income levels, low levels of productivity and rising unemployment. The research is based on the Keynesian theoretical approach of aggregate demand where demand by consumers and other components of spending drives economic growth. A quantitative research methodology was utilized using quarterly time series data from 2000 to 2018. The study attempted to determine both the long and short-run relationship between the selected variables, using econometric models such as Johansen cointegration and ARDL models with consumer spending as dependent variable with real income, inflation, productivity and employment as independent variables. Results from the econometric analysis indicated long-run relationships between the variables. Results from a short-run perspective indicate that consumer spending in the short run is positively significant to employment, real income and inflation. Employment, both formal and informal employment should be facilitated and promoted by means of enabling environment policy development. Also, income levels for the lower income earners should be increased to enhance consumer spending and ultimately contributing to economic growth. It should also be a policy guideline to ensure growth in productivity is above growth in income.