An investigation of employment outcomes in South African manufacturing

Mercer, Sean

An investigation of employment outcomes in South African manufacturing

Master Thesis

2020

Abstract

The aim of this research paper is to investigate the employment outcomes in South African manufacturing between 1972 and 2016. The research employs a combination of qualitative and quantitative analysis in demonstrating how South Africa's manufacturing sector has become increasingly capital-intensive, with aggregate manufacturing employment falling by approximately 600 thousand jobs between 1982 – 2016. The investigation highlights the influence of industrial policy decisions in this outcome, creating a bias towards investment in capital-intensive manufacturing industries. This trend has continued post-1994, despite government's repeated commitment to job creation and strategic policy support for more labour-intensive industries. A further investigation of the manufacturing sector at a sub-industry level indicates that while capital-intensity has increased in capital and labour-intensive industries alike, the increase in aggregate manufacturing capital-intensity is due primarily to capital-intensive industries expanding their share of aggregate capital stock and output relative to labour-intensive industries. Consequently, South Africa's revealed comparative advantage lies, somewhat paradoxically, in capital-intensive production, contrasting the manufacturing sectors in similar comparator countries. To ensure a rigorous investigation of the aforementioned outcomes, the paper examines the common notion that South African real wages are too high to be competitive in labour-intensive production. The findings indicate that poor labour productivity is an equally important contributor to uncompetitive unit labour costs relative to competitor countries. As a means of addressing these challenges, utilizing a practical example, the paper proposes the use of special economic zones to create an environment from which labour-intensive production can thrive. It highlights the potential of targeted industrial policies, in a controlled environment to reduce the cost of labour whilst simultaneously improving productivity over time. Utilizing various instruments, for example wage subsidies, the example illustrates how such an approach is a cost-effective way of encouraging investment in labour-intensive industries, simultaneously offering a solution to more meaningful employment creation in South African manufacturing.

Keywords

economics

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