A cross-sector analysis of the interaction between aggregate expenditure and job creation in South Africa
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The entire world is facing high rates of unemployment and policymakers and macroeconomists are in thorough search for the best way of creating sustainable jobs. In the South African context, the rate of unemployment increases each year and it has become the major concern of the whole country. Among different strategies that can lead to job creation include increase in government spending on job creation, boost investment spending and enhance trade; however, the choice of the appropriate sector in which these strategies can work remains a puzzle. The theory behind the job creation is that more jobs can be created if the right approaches are applied into the right economic sectors. The literature review in this study focussed on the Keynesian model of employment in which spending and demand growth lead to the production and creation of employment. Although Keynesian theory faced some criticisms, it is still relevant and applicable in various countries‟ economy. In this study, attention was given to the short and long-run analysis of interaction between the components of the aggregate expenditure and job creation across sectors of the South African economy. Thus, the empirical objectives were: (1) to compare the attribution to job creation in different South African economic sectors; (2) to determine the effects of components of aggregate expenditures namely, consumption, government expenditure, investment and net export on job creation in each sector; and (3) to compare the effects of aggregate expenditure on job creation across different economic sectors. The sample period was 21 years; that is from the first quarter of 1994 to the fourth of 2015. Among the major South African economic sector, five sectors namely business enterprises, construction; financial, manufacturing and mining were selected. In analysing the relationship between aggregate expenditure and job creation in different sectors, the Autoregressive Distributed Lag (ARDL) model or bound test of co-integration, Granger causality test and Error Correction Model (ECM) were employed. The long-run analysis found that aggregate expenditure can create long-term jobs in business enterprises, construction, manufacturing and mining sectors, but there was no long-run relationship between aggregate expenditure and job created in financial sector. The short-run relationships exist between aggregate expenditure and job creation in two sectors namely manufacturing and business enterprises. There was no evidence of short-run job creation in mining and financial sectors. Testing the causality among times series, the results revealed that jobs created in one sector stimulate and influence job creation in the other sectors. In addition, jobs created in those different sectors through aggregate expenditure enhance and boost the future spending. Investment spending, consumption and government spending appeared to be the engine of job creation in South Africa, while a net export has a nil effect on job creation. Besides its contribution on the literature, the study provided key sectors with information on the aggregate expenditures components that make a good combination in favour of job creation. Based on findings of this study the South African economic authorities and policymakers should empower manufacturing sector and encourage consumption of domestic products for this can increase the number of new jobs. In addition, South Africa needs to create enabling and sustainable environment for small and medium businesses by providing equal support for young/small and mature/large business. Finally, a link or network among economic sectors should be established for the success of one sector impacts on other the sectors success and employment.