After twenty years of democracy, the most pressing problem facing South Africa is the
absence of sustainable economic growth and job creation. Since 1994, major economic
reforms and adjustments have been made, which were seen as a requirement for
achieving economic growth and development. However, despite these efforts,
unemployment in South Africa remains a challenging problem.
The main objectives of the study are, firstly, to examine South Africa’s economic policy
initiatives implemented since 1994. Secondly, to determine whether the issue of
unemployment has improved under a review of the economic policies that have been
implemented since 1994. Finally, this is achieved by examining the changes in employment
and, more specifically, the changes in the cost-neutral change in the capital/labour (K/L)
ratio between 1995 and 2013 by means of a historical Computable General Equilibrium
(CGE) modelling approach.
The literature study focuses on employment, growth and human capital theories to reflect
on the present state of knowledge and to contribute to evidence-based policy debates. It
also provides an overview of South Africa’s economic policy, programmes and strategy
decisions and of the country’s economic stance since the transition to democracy in 1994,
with a specific focus on the labour market.
Historical CGE modelling, applied using the PEKGEM – a dynamic CGE model of the
South African economy, was chosen to examine the relationship between growth and
structural changes under the different economic and development policies in South Africa
between 1995 and 2013. The primary aim was to determine how the dynamics and
structure of South African employment changed during the period in which these policies
were implemented, using the historical CGE modelling approach. The focus was primarily
on changes in the capital and labour markets across all sectors over this period.
The results indicate an increase in capital relative to labour (K/L) over the period 1995 to
2013, despite the increase seen in the rental price of capital relative to wages (PK/PL). To
better understand the structural shift, the theoretical specification of the capital/labour
preference within PEKGEM was considered. The results suggests that at any given ratio of
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real wages relative to the rental price of capital, industries would choose a K/L ratio 8.1 per
cent higher in 2013 than it would have in 1995. Considering the fact that South Africa has a
comparative advantage in unskilled labour-intensive goods, especially given the country’s
abundance of labour and high levels of unemployment, the shortcomings of South Africa’s
economic policies in addressing the pressing issue of unemployment is emphasised.