The relationship between employment and economic growth in South Africa

Abstract

Current literature has produced mixed findings on the relationship between economic growth and employment. Given the priority accorded to job creation in contemporary South Africa, this study has become necessary. Although this phenomenon has been studied in the past, but current research that extend the phenomenon up to 2014 is missing in the literature, hence this dissertation set out to extend the literature to 2014 with a view to offering an advice to policy makers based on current findings. The study was done in South Africa and it covers the period from 1994 to 2014. The study used number of econometrics techniques or test to analyse the relationship between employment and economic growth. The Johansen co-integration test was used to determine the long run equilibrium relationship. The Granger causality test was used to determine the causal relationship or direction of causality between economic growth and employment. The co-integration test shows that there is a long run equilibrium relationship between employment and economic growth in South Africa. In both long run and short run, there is a positive relationship between employment and economic growth. This shows that there is certainty that economic growth would necessarily lead to job creation in the long run in South Africa, therefore the policy implication is that the government has to be active to plan ahead for a long run job creation mechanism. The research recommends amongst others that the government should design policies to encourage foreign direct investment inflow to South Africa as this will create more job in the long run.