Sources of unemployment in Namibia: an application of the structural VAR approach

Abstract

The main purpose of the research was to establish the sources of unemployment in Namibia for the period 1980 to 2013 using the SVAR methodology. Empirical results show that persistently high unemployment is the result of a combination of various shocks as well as the hysteresis mechanism. The impulse response functions and variance decomposition functions agree that labour supply, aggregate demand, and real wages seem to be the critical factors affecting unemployment. Moreover, the price shocks affect unemployment in the long run and productivity shocks explain only a small fraction of the forecast error variance decomposition of unemployment in both the short run and long run. This finding is consistent with the controversy of uncertain effects of productivity shocks on the unemployment rate. Aggregate demand policies, deregulation policies and structural labour market reforms can be useful policy instruments to tackle unemployment in Namibia.