Article Sidebar

Submitted
January 27, 2022
Accepted
September 27, 2022
Published
October 5, 2022
Download
Full text PDF
Statistic
Read Counter : 487 Download : 822

Downloads

Download data is not yet available.

Main Article Content

Abstract

Purpose ― The paper investigated the effect of the interaction of fiscal deficits and total factor productivity (TFP) and fiscal deficits and the wage share on unemployment.


Methods ― The paper applied an autoregressive distributed lag model to South African annual data from 1991-2019.


Findings ― First, increases in fiscal deficits increase unemployment at all levels of TFP and wage share. Second, increases in TFP increase unemployment at different levels of fiscal deficit, but after the global economic recession, the rate of increase in unemployment declined significantly. This means that the interaction of rising TFP and fiscal deficits in South Africa, where the growth regime is profit-led and technology-driven, always results in increasing unemployment. Third, as the wage share increases, unemployment increases, at all levels of fiscal deficits, suggesting that a wage-led growth regime is no panacea to unemployment either.


Implications ― The findings imply that expansionary fiscal policy does not necessarily create an economy that works for all unless active labour market institutions are set up. The findings challenge the notion that the solution to unemployment in South Africa is wage flexibility. Neither do the findings support the idea that following a profit-led growth path is a solution. A balanced mix of the two growth regimes would work.


Originality ― Studies have considered the productivity-enhancing effects of structural fiscal policy, but they have not considered the possible effects of interactions between productivity, fiscal policy and wage shares. The paper addresses the gap by introducing the interactions of TFP and fiscal deficits, as well as the interaction of wage share and fiscal deficits.

Keywords

unemployment total factor productivity fiscal deficit wage share

Article Details

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Author Biography

Juniours Marire, Department of Economics and Economic History Rhodes University, Eastern Cape, South Africa

Senior Lecturer

How to Cite
Marire, J. (2022). Unemployment, total factor productivity, budget deficit, and wage share in South Africa. Economic Journal of Emerging Markets, 14(2), 189–203. https://doi.org/10.20885/ejem.vol14.iss2.art4
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Banerjee, A., Galiani, S., Levinsohn, J., McLaren, Z., & Woolard, I. (2008). Why has unemployment risen in the New South Africa? Economics of Transition, 16(4), 715–740. https://doi.org/10.1111/j.1468-0351.2008.00340.x
  2. Benigno, P., Ricci, L., & Surico, P. (2015). Unemployment and productivity in the long run: The role of macroeconomic volatility. The Review of Economics and Statistics, 97(3), 698–709. https://doi.org/10.1162/REST_a_00508
  3. Betti, T., & Coudert, T. (2022). How harmful are cuts in public employment and wage in times of high unemployment? Bulletin of Economic Research, 74(1), 247–277. https://doi.org/10.1111/boer.12296
  4. Bond, P. (2015). Bretton Woods Institution narratives about inequality and economic vulnerability on the eve of South African Austerity. International Journal of Health Services, 45(3), 415–442. https://doi.org/10.1177/0020731415584561
  5. Burger, P., & Calitz, E. (2021). Covid-19, economic growth and South African fiscal policy. South African Journal of Economics, 89(1), 3–24. https://doi.org/10.1111/saje.12270
  6. Burger, P., Siebrits, K., & Calitz, E. (2016). Fiscal consolidation and the public sector balance sheet in South Africa. South African Journal of Economics, 84(4), 501–519. https://doi.org/10.1111/saje.12126
  7. Cho, J. S., Greenwood-Nimmo, M., & Shin, Y. (2022). Recent developments of the autoregressive distributed lag modelling framework. Journal of Economic Surveys, 36(4), 1–26. https://doi.org/10.1111/joes.12450
  8. Esteban-Pretel, J., Meng, X., & Tanaka, R. (2021). Fiscal policy changes and labor market dynamics in Japan’s lost decade. Macroeconomic Dynamics, 26(6), 1–40. https://doi.org/DOI: 10.1017/S136510052100002X
  9. Fedeli, S., Forte, F., & Ricchi, O. (2015). The long term negative relationship between public deficit and structural unemployment: An empirical study of OECD countries (1980-2009). Atlantic Economic Journal, 43(1), 39–54. https://doi.org/10.1007/s11293-014-9437-z
  10. Fernandez-Marquez, C. M., Fuentes, M., Martınez, J. J., & Vazquez, F. J. (2018). Relationship between productivity and unemployment in an agent-based model. Retrieved from https://www.unsam.edu.ar/escuelas/economia/sidi/ediciones/files/2019/Relationship between productivity...pdf
  11. Ferreira, L. (2016). South Africa’s economic policies on unemployment: A historical analysis of two decades of transition. Journal of Economic and Financial Sciences, 9(3), 807–832.
  12. Forslund, D. (2013). Mass unemployment and the low wage regime in South Africa (New South African Review No. 3). Johannesburg.
  13. Giupponi, G., Landais, C., & Lapeyre, A. (2022). Should we insure workers or jobs during recessions? Journal of Economic Perspectives, 36(2), 29–54. https://doi.org/10.1257/jep.36.2.29
  14. Hirsch, A. (2005). Season of hope: Economic reform under Mandela and Mbeki. University of KwaZulu-Natal Press.
  15. Jeremy Seekings, P., & Nattrass, N. (2005). Class, race, and inequality in South Africa. Yale University Press.
  16. Kam, C. D., & Franzese, R. J. (2007). Modeling and interpreting interactive hypotheses in regression analysis. University of Michigan Press.
  17. Kapeliushnikov, R. (2019). The phantom of technological unemployment. Russian Journal of Economics, 5(1), 88–116.
  18. Kelton, S. (2015). The failure of austerity: Rethinking fiscal policy. The Political Quarterly, 86(S1), 28–46. https://doi.org/https://doi.org/10.1111/1467-923X.12231
  19. Kelton, S. (2020). The deficit myth MMT and the peoples economy. New York: Public Affairs.
  20. Krutova, O., Koistinen, P., Turja, T., Melin, H., & Särkikoski, T. (2021, January 1). Two sides, but not of the same coin: Digitalization, productivity and unemployment. International Journal of Productivity and Performance Management. Emerald Publishing Limited. https://doi.org/10.1108/IJPPM-05-2020-0233
  21. Lama, R., & Medina, J. P. (2019). Fiscal austerity and unemployment. Review of Economic Dynamics, 34, 121–140. https://doi.org/10.1016/j.red.2019.02.007
  22. Marire, J. (2022a). Effect of changing business R&D expenditure mix on productivity of the South African national system of innovation. African Journal of Science, Technology, Innovation and Development, 14(4), 1071–1082. https://doi.org/10.1080/20421338.2021.1935424
  23. Marire, J. (2022b). Relationship between fiscal deficits and unemployment in South Africa. Journal of Economic and Financial Sciences, 15(1), 1–12. https://doi.org/10.4102/jef.v15i1.693
  24. Nkoro, E., & Uko, A. K. (2016). Autoregressive Distributed Lag (ARDL) cointegration technique: Application and interpretation. Journal of Statistical and Econometric Methods, 5(4), 63–91.
  25. Ntshwanti, M. (2022). Is growth in the South African economy profit-led or wage-led? Journal of Economic and Financial Sciences, 15(1), 1–12. https://doi.org/10.4102/jef.v15i1.704
  26. Pensiero, N. (2022). The effect of computerisation on the wage share in United Kingdom workplaces. The Economic and Labour Relations Review, 33(1), 158–177. https://doi.org/10.1177/10353046211048750
  27. Phelps, E. (2018). The Fantasy of Fiscal Stimulus. Retrieved from https://www.wsj.com/articles/the-fantasy-of-fiscal-stimulus-1540852299
  28. Phiri, A., & Mbaleki, C. (2022). Fiscal expenditures, revenues and labour productivity in South Africa. Cogent Economics & Finance, 10(1), 1–18. https://doi.org/10.1080/23322039.2022.2062912
  29. Rooks, G., & Oerlemans, L. (2005). South Africa: A rising star? assessing the X-effectiveness of South Africa’s national system of innovation. European Planning Studies, 13(8), 1205–1226. https://doi.org/10.1080/09654310500336584
  30. Sawyer, M. (2020). Kalecki on budget deficits and the possibilities for full employment. Review of Political Economy, 32(4), 548–562. https://doi.org/10.1080/09538259.2020.1831203
  31. Schoeman, C., & Blaauw, P. (2009). Unemployment in South Africa 1970 – 2002: The development of a configuration concern for future employment. Journal of Economic and Financial Sciences, 3(1), 87–98. https://doi.org/10.4102/jef.v3i1.348
  32. Stirati, A., & Paternesi Meloni, W. (2021). Unemployment and the wage share: A long-run exploration for major mature economies. Structural Change and Economic Dynamics, 56, 330–352. https://doi.org/10.1016/j.strueco.2021.01.003
  33. Stockhammer, E., & Onaran, Ö. (2012). Rethinking wage policy in the face of the Euro crisis. Implications of the wage-led demand regime. International Review of Applied Economics, 26(2), 191–203. https://doi.org/10.1080/02692171.2011.631903
  34. Tanaka, Y. (2022a). Involuntary unemployment as a Nash equilibrium and fiscal policy for full employment. International Game Theory Review, 24(2), 1–11. https://doi.org/10.1142/S0219198921500183
  35. Tanaka, Y. (2022b). Necessity of budget deficit under economic growth in monopolistic competition. Economics and Business, 36(1), 1–16. https://doi.org/10.2478/eb-2022-0001
  36. Villanueva, P., & Cárdenas, L. (2021). Unemployment in Spain: The failure of wage devaluation. The Economic and Labour Relations Review, 32(4), 552–574. https://doi.org/10.1177/10353046211023807
  37. Watts, M. J., & Sharpe, T. P. (2013). Immutable laws of debt dynamics. Journal of Post Keynesian Economics, 36(1), 59–84. https://doi.org/10.2753/PKE0160-3477360104
  38. Yuan, B., Leiling, W., Saydaliev, H. B., Dagar, V., & Acevedo-Duque, Á. (2022). Testing the impact of fiscal policies for economic recovery: Does monetary policy act as catalytic tool for economic Survival. Economic Change and Restructuring. https://doi.org/10.1007/s10644-022-09383-7
  39. Zhu, Z. (2022). Hypothesis on the positive U Curve relationship between unemployment rate and productivity. International Journal of Management and Education in Human Development, 2(1), 178–181.