Productivity, Wages and Employment in South Africa’s Manufacturing Sector, 1970-2002

This paper investigates the relationship between labour productivity, average real wages and employment in South Africa’s manufacturing sector, using cointegrating VAR and VECM econometric techniques. A long-run equilibrium relationship was found between real wages and productivity, with an elasticity of 0,38 indicating that productivity has grown more rapidly than wages. However, the econometric tests proved to be highly sensitive to specification and sample period. Nevertheless, the main result is consistent with the finding that labour’s share of gross output has been shrinking over the past three decades, which has negative implications for income distribution. These trends may plausibly be explained by capital intensification and possibly the adoption of labour-saving technology. The implication is that growth in the manufacturing sector cannot realistically be relied upon to create significantly more jobs for South Africa’s millions of unemployed. Policy-makers are urged to consider alternative strategies which promote local economy and protect key labour-intensive sectors.