Abstract
Key intension of this paper was to verify Okun’s law in the South African perspective using data of the period 1990Q1 to 2013Q1. After detrending the series, the first lag and rank were used in the analysis to estimate Okun’s coefficient. The coefficients obtained were not in accordance with an acclaimed 3%. The short run model confirmed that a speed of 12.8% per quarter may be required to enable the system of unemployment rate in the country to be inverted back to normal. Toda-Yamamoto causality test reported no feedback associations between unemployment and GDP in SA. Empirically, evidence provides positive coefficients implying inapplicability of Okun’s law to South Africa. Nonetheless, unemployment still remains high according to the South African standards and it has to be dealt with amicably. The paper recommends to government and policy makers to up their games by employing economic policies that are more focused on to operational changes and makeover in workforce market. DOI: 10.5901/mjss.2014.v5n23p435
Highlights
Most economies, irrespective of their classification status, have their eyes and apprehensions on issues around unemployment and economic production
The results of the augmented Dickey-Fuller (ADF) unit root and KPSS stationarity tests are summarized on Table 1 with Figure 2 showing GDP and unemployment rate following no pattern after being subjected to first difference
Both the trace and the maximum eigenvalue exceed the corresponding critical values at rank one under the null hypothesis. This leads to the rejection of the null hypothesis in favour of the alternative providing more evidence to conclude that cointegration and long run relationships do exist between the variables as displayed on Figure 1
Summary
Irrespective of their classification status, have their eyes and apprehensions on issues around unemployment and economic production. Unemployment is considered the most challenging and pervading problem faced by most economies This indicator is regarded as the basis of poverty and economic dispersion. Miskolczi, Langhamrova and Fiala (2011) view economic production as an indicator which politicians and economists use to manage efficiency of the economy and businesses. High rates of unemployment could mean that available labour resources are not being used efficiently, not allocated at all or inaptly allocated. This has given rise to unrelenting debate around unemployment-economic productivity nexus. Evidence of effective maximization of resources result in full employment, which is one of the primary economic goals of a country
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