Econometric analysis of the effects of aggregate expenditure on job growth in the private sector: the South African case

Abstract

The private sector contributes to job creation either directly by creating new positions for job seekers or indirectly by increasing growth that results in job creation for unemployed people. This study employed an Autoregressive Distributed Lag (ARDL) model to analyse the long and short run effects of aggregate expenditure on job creation in the private sector in South Africa. The findings indicated that there is a long run relationship between aggregate expenditure and job creation in the private sector. Investment spending and net exports are the aggregate expenditure components that create long-term jobs, whereas consumer consumption and government spending lead to possible long run job destruction. The Error Correction Model (ECM) results revealed that consumption and investment spending create jobs in the short run, while the Granger-causality test suggested that a bi-directional causal relationship exists between consumption, investment spending and employment in the private sector. The study concluded that the negative effect of consumption on private employment might be due to the consumption of imported goods and services. Thus, the employment situation in South Africa could be improved if more focus is placed on consumption of domestic products.