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
Article Details
Copyright (c) 2022 Juniours Marire
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
- Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).
Economic Journal of Emerging Markets by Center for Economic Studies, Universitas Islam Indonesia is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
References
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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.
- Forslund, D. (2013). Mass unemployment and the low wage regime in South Africa (New South African Review No. 3). Johannesburg.
- 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
- Hirsch, A. (2005). Season of hope: Economic reform under Mandela and Mbeki. University of KwaZulu-Natal Press.
- Jeremy Seekings, P., & Nattrass, N. (2005). Class, race, and inequality in South Africa. Yale University Press.
- Kam, C. D., & Franzese, R. J. (2007). Modeling and interpreting interactive hypotheses in regression analysis. University of Michigan Press.
- Kapeliushnikov, R. (2019). The phantom of technological unemployment. Russian Journal of Economics, 5(1), 88–116.
- 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
- Kelton, S. (2020). The deficit myth MMT and the peoples economy. New York: Public Affairs.
- 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
- 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
- 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
- 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
- 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.
- 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
- 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
- Phelps, E. (2018). The Fantasy of Fiscal Stimulus. Retrieved from https://www.wsj.com/articles/the-fantasy-of-fiscal-stimulus-1540852299
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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
- 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.
References
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
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
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
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
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
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
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
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
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
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
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.
Forslund, D. (2013). Mass unemployment and the low wage regime in South Africa (New South African Review No. 3). Johannesburg.
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
Hirsch, A. (2005). Season of hope: Economic reform under Mandela and Mbeki. University of KwaZulu-Natal Press.
Jeremy Seekings, P., & Nattrass, N. (2005). Class, race, and inequality in South Africa. Yale University Press.
Kam, C. D., & Franzese, R. J. (2007). Modeling and interpreting interactive hypotheses in regression analysis. University of Michigan Press.
Kapeliushnikov, R. (2019). The phantom of technological unemployment. Russian Journal of Economics, 5(1), 88–116.
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
Kelton, S. (2020). The deficit myth MMT and the peoples economy. New York: Public Affairs.
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
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
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
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
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.
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
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
Phelps, E. (2018). The Fantasy of Fiscal Stimulus. Retrieved from https://www.wsj.com/articles/the-fantasy-of-fiscal-stimulus-1540852299
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
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
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
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
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
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
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
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
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
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
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
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.