Is the current economic performance compatible with the projected NDP unemployment target?

Abstract

This study investigated the relationship between unemployment rates and economic growth, known as Okun’s Law. The non-linear autoregressive distributed lags (NARDL) model was employed using quarterly time series data sampled from 2000Q1 to 2021Q4. In this model, unemployment was used as the dependent variable, whereas output, exchange rate, and consumer prices index (CPI), were used as explanatory variables, and were decomposed into positive and negative partial sums to capture asymmetry in their effects on unemployment. The findings of this study provided evidence of asymmetry in the effect of all the explanatory variables in the long-run, and a negative relationship is found between output and unemployment. However, unemployment was found more elastic to negative shocks in output than positive shocks. This implies that in the South African labour market, employers are quicker to retrench when the economy is in recession and slower to absorb when the economy is in expansion. Therefore the 6% unemployment target by 2030 appears hypothetical for South Africa, considering its current position. In this regard, this study recommends South African policymakers adjust their labour laws to be more flexible, so that employers do not substitute more labour with capital in the production process.

IMPACT STATEMENT

This year 2024 marks twelve years since the National Development Plan (NDP) goals were formulated in South Africa. It is with deep sadness that the society is still characterised by deep poverty, elevated levels of crime and poor living standards. The stimulus packages employed by the South African government and policy uncertainty seem to be not working towards the direction of achieving the projected national development targets. It was necessary to conduct such an investigation to determine if the current economic experience could potentially steer South Africa towards the trajectory of achieving the NDP goals.

Keywords:

• Unemployment
• GDP growth
• Okun’s law
• NDP 2030 and NARDL
• time series
• South Africa

REVIEWING EDITOR:

• Christian Nsiah, Baldwin Wallace University, United States

SUBJECTS:

• Economics
• History of Economic Thought
• Finance

Acknowledgements

The authors are grateful to Dr Kehinde Ilesanmi for his encouragement and constructive suggestions which contributed to the success of this research. Also, the support in terms of resources and facilities provided by the Department of Economics at the University of Zululand has impacted positively on this research and is highly appreciated.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Limitations and future research

Although there are various objectives prioritised by the NDP to be achieved by 2030, due to the scope of this project, this study was confined to economic growth and unemployment. In this regard, future research may explore if the current economic climate is drifting other NDP objectives such as inequality, poverty, and crime for example, towards their projected targets.

Additional information

Notes on contributors

Mbongeni Zwelakhe Ngubane

Mbongeni Ngubane is a PhD candidate at the University of Zululand in South Africa. He is well-vested in the application of econometrics methods in monetary and macroeconomic quantitative analysis.

Siyabonga Mndebele

Siyabonga Mndebele is a PhD candidate at the University of Zululand, South Africa, with a wide research interest in monetary policy, macro-economic theory, and modelling. He is working as an assistant lecturer in the Department of Business Management, University of Zululand.

Kehinde D. Ilesanmi

Dr. K.D. Ilesanmi is a postdoctoral fellow at the University of Zululand South Africa. Ilesanmi’s research interests range from Energy Economics, Finance Economics, and Systematic Risk. He is also a Senior Lecturer in the Department of Economics at the University of Zululand.