On the Unemployment–Output Relation in South Africa: A Non-Linear ARDL Approach

  • Brian Tavonga Mazorodze University of Zululand, Department of Economics, KwaDlangezwa
  • Noureen Siddiq University of Lahore, Department of Economics, Sargodha Campus

Abstract

The central aim of this paper is to establish the asymmetric effects of cyclical output on South Africa’s unemployment rate. To achieve this objective, the non-linear autoregressive distributed lag model (NARDL) is applied on quarterly data spanning the periods 1994Q1–2017Q4. For every 10% economic contraction and expansion respectively according to the results, the response of the labour market is asymmetric in the long-run in that it loses more workers during contraction (10.3%) than it employs during recoveries (8%) supporting the labour market hysteresis. This is particularly true post the 2009 Global crisis suggesting that firms might have become more risk-averse to short-lived recoveries in recent years. The weak response of the labour market during expansions supports IMF’s recent proposition that economic recovery alone may not be enough to address South Africa’s unemployment problem. 

Downloads

Download data is not yet available.

References

Acemoglu, D. & Scott, A. (1994). Asymmetries in the cyclical behaviour of UK labour markets. The Economic Journal, 1303-1323. Alhawarin, I. M. & Kreishan, F. M. (2010). An Analysis of Long-Term Unemployment (LTU) in Jordan’s Labor Market. European journal of social sciences, 15(1), 56-65. Arshad, Z. & Erixon, L. (2010). The Validity of Okun’s Law in the Swedish Economy. Stockholm: Department of Economics Stockholm University. Banda, H. & Choga, I. (2016). The impact of economic growth on unemployment in South Africa: 1994-2012. Beaton, K. (2010). Time variation in Okun's law: A Canada and US comparison (No. 2010, 7). Bank of Canada Working Paper. Blanchard, O. J. & Summers, L. H. (1986). Hysteresis and the European unemployment problem. NBER macroeconomics annual, 1, 15-78. Bodman, P. M. (1998). Asymmetry and duration dependence in Australian GDP and unemployment. Economic Record, 74(227), 399-411. Cevik, E. I., Dibooglu, S. & Barişik, S. (2013). Asymmetry in the unemployment–output relationship over the business cycle: evidence from transition economies. Comparative Economic Studies, 55(4), 557-581. Cuaresma, J. C. (2003). Okun's law revisited. Oxford Bulletin of Economics and Statistics, 65(4), 439-451. Driouche, D. (2013). Economic Growth and Unemployment in Algeria: An Econometric Study, Al-Najah University Journal for Research, 27, 6, 1301-1318. Engle, R. F. & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: Journal of the Econometric Society, 251-276. Fatai, B. O. & Bankole, A. (2013). Empirical test of Okun’s Law in Nigeria. International Journal of Economic Practices and Theories, 3(3), 227-231. Geidenhuys, J. & Marinkov, M. (2007). Robust estimates of Okun‘s coefficient for South Africa, Working Paper. Hodrick, R. J. & Prescott, E. C. (1997). Post-war US business cycles: an empirical investigation. Journal of Money, credit, and Banking, 1-16. Holmes, M. J. & Silverstone, B. (2006). Okun's law, asymmetries and jobless recoveries in the United States: A Markov-switching approach. Economics Letters, 92(2), 293-299. Huang, S. M., Wei, C. W., Yu, P. T. & Kuo, T. Y. (2005). An empirical investigation on learners' acceptance of elearning for public unemployment vocational training. International journal of innovation and learning, 3(2), 174-185. Jardin, M. & Gaétan, S. (2011). How Okun’s law is non-linear in Europe: a semi-parametric approach. Rennes, University of Rennes. Javed, U. (2005). Okun's law: empirical evidence from Pakistan 1981-2005, master thesis, Södertörn University, School of Social Sciences, Sweden. Knotek, II, E. S. (2007). How useful is Okun's law. Economic Review-Federal Reserve Bank of Kansas City, 92(4), 73.
Kreishan, F. M. (2011). Economic growth and unemployment: An empirical analysis. Journal of Social Sciences, 7(2), 228-231. Lal, I., Muhammad, S., Jalil, M. A. & Hussain, A. (2010). Test of Okun’s law in some Asian countries cointegration approach. Lee, J. (2000). The robustness of Okun's law: Evidence from OECD countries. Journal of Macroeconomics, 22(2), 331-356. Leshoro, T. L. (2013). Does Economic Growth Lead Employment in South Africa? Journal of Economics and Behavioral Studies, 5(6), 336. Mah, J. S. (2000). An empirical examination of the disaggregated import demand of Korea—the case of information technology products. Journal of Asian Economics, 11(2), 237-244. Marinkov, M. & Geldenhuys, J. P. (2007). Cyclical unemployment and cyclical output: An estimation of Okun's coefficient for South Africa. South African Journal of Economics, 75(3), 373-390. Moosa, I. A. (1999). Cyclical output, cyclical unemployment, and Okun's coefficient a structural time series approach. International Review of Economics & Finance, 8(3), 293-304. Narayan, S. & Narayan, P. K. (2005). An empirical analysis of Fiji's import demand function. Journal of Economic Studies, 32(2), 158-168. Narayan, P. K. & Smyth, R. (2004). Crime rates, male youth unemployment and real income in Australia: evidence from Granger causality tests. Applied Economics, 36(18), 2079-2095. Okun, A. M. (1962). Potential GNP: Its Measurement and Significance. In Proceedings of the Business and Economics Statistics Section. Alexandria, VA: American Statistical Association, 98-10 Owyang, M. T. & Sekhposyan, T. (2012). Okun’s law over the business cycle: was the great recession all that different? Federal Reserve Bank of St. Louis Review, 94(September/October 2012). Pattichis, C. A. (1999). Price and income elasticities of disaggregated import demand: results from UECMs and an application. Applied Economics, 31(9), 1061-1071. Pehlivanoğlu, F. & Tanga, M. (2016). An Analysis of the Validity of Okun's Law: Case of Turkey and BRICS. Uluslararası Ekonomik Araştırmalar Dergisi, 2(3). Bai, J. & Perron, P. (1998). Estimating and testing linear models with multiple structural changes. Econometrica, 47-78. Pesaran, M. H., Shin, Y. & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326. Phiri, A. (2014). Nonlinear co-integration between unemployment and economic growth in South Africa. Managing Global Transitions, 12(4), 303. Shin, Y., Yu, B. & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in Honor of Peter Schmidt (pp. 281-314). Springer, New York, NY. Tombolo, G. A. & Hasegawa, M. M. (2014). Okun's law: evidence for the Brazilian economy. Villaverde, J. & Maza, A. (2009). The robustness of Okun's law in Spain, 1980–2004: Regional evidence. Journal of Policy Modelling, 31(2), 289-297. Weber, C. E. (1995). Cyclical output, cyclical unemployment, and Okun's coefficient: A new approach. Journal of applied econometrics, 10(4), 433-445.
Published
2018-11-03
How to Cite
MAZORODZE, Brian Tavonga; SIDDIQ, Noureen. On the Unemployment–Output Relation in South Africa: A Non-Linear ARDL Approach. Journal of Economics and Behavioral Studies, [S.l.], v. 10, n. 5, p. 167-178, nov. 2018. ISSN 2220-6140. Available at: <https://ifrnd.org/journal/index.php/jebs/article/view/2506>. Date accessed: 23 mar. 2019. doi: https://doi.org/10.22610/jebs.v10i5.2506.
Section
Research Paper