Abstract
Background: In the literature, human capital has been identified as a key economic variable that isneeded to promote growth; hence this study explores the components of human capital, that is,different skill levels in order to capture the real effect of the employed labour on economic outputacross the municipalities of South Africa. Aim: This study investigates the effect of human capital of employed labour on economic output andgrowth in South Africa. Setting: The study focusses on the balanced panel of 269 South African municipalities for the period 1993to 2016. Method: The study utilises panel causality test and the Generalised Method of Moments (GMM) estimationtechniques. Results: A panel causality test confirms bidirectional causality between human capital and total output aswell as between total employment and total output. The resultant aggregate findings suggest that humancapital has a positive and a significant impact both on total output and economic growth. The disaggregatedproxy of human capital shows that higher levels of skilled employment is associate with higher total outputand economic growth. Conclusion: The findings on the effect of skilled employment on economic growth are in line withtheoretical literature and therefore the study concludes that human capital in the form of skilled labour has apositive effect on both economic output and growth in South Africa. This informs policy to prioritise the up-skilling of the labour force in order to contribute positively towards value generating economic activities in South Africa.