Author

  • Brian Tavonga Mazorodze

    • University of Zululand, Department of Economics, KwaDlangezwa, South Africa
    • South Africa

  • Noureen Siddiq

    • University of Lahore, Department of Economics, Sargodha Campus, Pakistan
    • Pakistan

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.

Keywords

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 e-learning 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.

Downloads

No downloads have been recorded for this article yet. Figures appear here once readers begin downloading the full text.

How to Cite

Mazorodze, B. T., & Siddiq, N. (2018). On the Unemployment–Output Relation in South Africa: A Non-Linear ARDL Approach. Journal of Economics and Behavioral Studies, 10(5(J), 167-178. https://doi.org/10.22610/jebs.v10i5(J).2506

Share this article

License

Copyright (c) 2018 Brian Tavonga Mazorodze, Noureen Siddiq (Author)

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of revised paper in the light of suggestions of the reviewers, the editorial team  edits and formats manuscripts to bring uniformity and standardization in published material.

This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.

Keywords

Section

Research Paper

Published in

Vol. 10 No. 5(J) (2018) Finance, Agriculture & Human Capital in Emerging Markets View issue contents

Published

2018-11-03

Submissions

Have research to publish? Journal of Economics and Behavioral Studies welcomes submissions.

Make a Submission