Quantifying shifts in primary factor demand in the South African economy

Abstract

This article uses a dynamic CGE model to explain the persistence in the high levels of unemployment in the South African economy in spite of modest to relatively strong output growth. We make use of a historical simulation for the period 2006 to 2013 and find that the capital-labour ratio increased despite a relative increase in the rental price of capital. Classical economic theory suggests that changes in industry preferences toward capital and labour lead to adjusted capital-labour ratios. We quantify the changes in industry factor preferences during this period and highlight their impact in explaining observed labour market outcomes. Other changes in the economy over this period are also quantified.