An analysis of the economic geography of labour market outcomes in South Africa

Abstract

This study examines the determinants of unemployment at the municipal level and as such aims to answer what the place-specific drivers of unemployment in South African cities and towns are. The purpose has been to test the arguments that local economies and labour markets matter for local unemployment. The empirical analysis makes use of a balanced panel data set for the period 1996 to 2012 for across 234 local and metropolitan municipalities to estimate a regression model in which the level of unemployment in a particular place is determined by a range of place-specific explanatory variables. It is found that the place-specific determinants of unemployment are a higher population growth rate and dense populations that are associated with lower unemployment rates, indicating the benefits from agglomeration economies. A large informal sector is negatively associated with unemployment, which supports the sentiments expressed in the literature that without agglomeration, economic opportunities for individuals in informal employment are limited. If people in a city or town are better educated this is associated with lower levels of unemployment on average. High inequality does not necessarily cause high unemployment; however, they do coincide. A positive association between specialisation and unemployment is found. Furthermore, the mining, manufacturing, construction and trade sectors that are locally bigger than in the national economy are associated with lower unemployment. The results support the findings that a link exists between geography and labour market outcomes and therefore the need exists for convergence of the social safety net and integration with the economic opportunities at the thriving cities and towns.