Abstract
M.Com. (Development Economics)
The South African economy is characterised by high levels of low-skilled labour and low levels of skilled labour. There is a consistent discussion on skills development among the different spheres of government and other key economic stakeholders. The inadequacy of the education and skills of the South African workforce is presented annually by the Global Competitiveness report as one of the most problematic factors for doing business in the country. The skills development programmes seek to add to the skill pool and up-skill the previously disadvantaged population to the skilled cohort. It is, therefore, necessary to ask what extra growth benefits would the up-skilling of the workforce bring to the economy.
This study investigates the effect of human capital of employed labour on economic output and growth in South Africa. The proxy used for human capital is the three different skill levels of the employed labour - skilled, semi-skilled and low-skilled. This research illustrates the influence of human capital through an endogenous growth model, with a panel data technique, using cross municipality data for the period between 1993 and 2016. A Granger causality test confirms bi-directional causality between human capital and total output as well as between total employment and total output. Upon detecting potential endogenous effects between key variables (human capital and total output), a system generalised method of moments is used for estimation as it controls for endogeneity.
The resultant aggregate findings suggest that human capital has a positive and a significant impact both on total output and economic growth. The disaggregated proxy of human capital shows that higher levels of skilled employment associate with higher total output and economic growth. However, against theoretical expectations, the share of low-skilled employment is associated with higher contribution to total output and output growth compared to the share of semi-skilled employment. The data reveals that according to the structure of the economy, the Agriculture and Mining sectors have attracted the highest share of low-skilled employment. While the contribution of the low-skilled employment share in these sectors is positive, the overall growth of the same sectors (Agriculture and Mining) has a muted contribution to total economic growth. This suggests that the capacity of these sectors is underutilised and therefore their potential for growth has not been fully realised.
The findings on the effect of skilled employment on economic growth are in line with theoretical literature and therefore the study concludes that human capital in the form of skilled labour has a positive effect on both economic output and growth in South Africa. This informs policy...