Determinants of employment in the textile and clothing industry in South Africa :an econometric perspective and investigative analysis

Abstract

Unemployment is one of the most economically crippling challenges facing South Africa today. The Department of Trade and Industry identified the Textile and Clothing Industry as a labour absorbing industry for many developing countries, including South Africa. However, the capacity of the sector to create jobs in South Africa has been changing. This study therefore aims to examine the probable causes of employment in the textile and clothing industry of South Africa and to propose policy recommendations that to alleviate the unemployment issues in the industry. The determinants of unemployment are analysed using co-integration analysis from an econometric perspective with annual time series data from 1986 to 2016. The study identifies domestic demand, real output, wage rate, and imports as some determinants in the textile and clothing industry. The results suggest that the model is co-integrated at 5% level of significance and there is a long-run relationship between employment and its determinants. For further examination of the relationship between unemployment and its determinants, the study conducted the Vector Error Correction Model and VECM Granger Causality techniques. The model was found to converge back to equilibrium at 0.183 convergence speed. These techniques revealed that the linear model is a good fit, passing both diagnostic and stability tests. The study also conducted the impulse response functions and variance decomposition to assess how shocks to economic variables reverberate through a system. Employment show an increase given positive economic shocks to output and wage rate. The study has recommended subsidization and incentivizing of the industry by government to assist in keeping operational costs low and improve output. For imports, the study suggested a mutual co-operation through joint ventures between South African companies and Chinese firms. South Africa may benefit from the transfer of technology and expertise, increased production capacity and job creation. Keywords: Employment, unemployment, long-run relationship, labour-intensive, demand, output