Today’s post looks at how much industry employment responds to economic growth in South Africa. Our back-of-the-envelope estimates suggest that there are meaningful differences in how responsive employment has been to GDP growth across industries. Employment elasticities are largest in Community and social services and Finance and business services industries, with elasticities slightly over a one-for-one for formal employment response to growth. Informal employment reacts more strongly to GDP growth than formal employment in Community and social services, Finance and Business services, Trade, and Transport. The relationship for formal employment is low in other industries, and even negative in the electricity, gas, and water (‘Utilities’) industry and for informal employment in Mining. In the case of formal employment in Utilities, for example, this is because formal employment increased for several of the years since 2008, despite falls in industry output. The elasticities for informal employment for Mining and Utilities are so negative that we have cut off the Y axis for the chart for the other estimates to be more easily read. This reflects declining output volumes and volatile informal employment in this industries.
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Footnotes
It is important to note that these estimates are illustrative only: the model does not control for industry-specific factors that affect the extent to which employment responds to economic growth, lagged responses of employment, the impact of the global financial crisis or COVID-19 pandemic, or time variation in these relationships. The elasticity estimate for community and social services is also likely biased upwards as we have included government employment in our industry aggregation (on account of data availability). While private sector employment growth has been very low as a consequence of low economic growth, government employment has not been as much less cyclical and has increased over the sample.
Statistics South Africa does not provide informal employment estimates for agriculture, which according to the International Labour Organisation (ILO) has a very high proportion of informal employment in South Africa (at about 75%). However, you can see our estimate for formal sector employment elasticity in this earlier post.