In particular, we investigate the labour absorption of exports versus domestic demand and the labour absorption of exports by destination market.. Rather than attempting to undertake a f
Trang 2Employment and Economic Policy Research Programme, Occasional Paper 2
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Trang 3The Employment and Economic Policy Research Programme of the Human Sciences Research Council publishes this Occasional Paper series The series is designed to contribute to knowledge and stimulate debate on employment and unemployment dynamics We invite comments and responses from readers.
Trang 4Having worked as an economic policy analyst at the University of Stellenbosch and the Policy Unit at the Development Bank of Southern Africa (DBSA) for more than a decade, Dirk Ernst van Seventer has operated as an independent consultant for the last eight years His focus is trade, industry and macro-economic analysis in an economy-wide framework for South and southern Africa and occasionally this includes other economies His target group includes private sector corporations, NGOs, as well as public sector policymakers.
Trang 5This paper reports on the labour absorption of South Africa’s exports using a simple first-generation social accounting matrix-based configuration (SAM) In particular,
we investigate the labour absorption of exports versus domestic demand and the labour absorption of exports by destination market A distinction is made between full backward linkages and those where supply constraints are considered in the primary sectors Moreover, we consider marginal versus average demand for labour responses
to domestic and foreign demand injections We find that on average, exports are more low-skill labour intensive compared to domestic demand, but if supply constraints are introduced and we only consider marginal increases, domestic demand appears to be more labour intensive In terms of destination markets, we broadly confirm findings from the mid-1990s that South African exports to developed countries remain more low-skill intensive, while exports to developing markets are more high-skill intensive
Trang 7Liberalisation of the trade regime has been and still is one of the main objectives of South Africa’s policy-makers over the last ten years If we are to believe the Heckscher-Ohlin theorem and, given the distribution of factors endowment, with capital and highly skilled labour in short supply and unskilled labour in abundance, one would expect South African trade to favour low-skilled labour-intensive manufacturing industries Considerable attention has been given to this issue in the past and some of this analysis has been synthesised in TIPS’ State of Trade Policy (Cassim, Onyango & Van Seventer 2002)
The HSRC has been conducting a wide-ranging programme of analysis of labour markets in South Africa, focusing on demand as well as supply In the context of this programme there is a need for a more current view of the labour absorption of South Africa’s trade Earlier work by Edwards (2001) used a decomposition analysis based on methodologies advanced by Chenery, Robinson and Syrquin (1986) Fedderke, Shin and Vase (1999) have applied econometric techniques to examine the relationship between trade and employment in South Africa Prior to that, Bell and Cattaneo (1987) utilised a factor content approach to South Africa’s trade basket These methodologies are beyond the scope of the current needs of the HSRC In this paper
a much simpler methodology is used to evaluate labour absorption of exports by skill category
An important consideration is to account for direct as well as indirect labour usage Moreover, the sources and destination of South Africa’s exports by broad trading region can be an important factor as had previously been pointed out by Edwards (2001) Rather than attempting to undertake a full-scale employment decomposition analysis of South Africa’s total trade, however, we examine the direct and indirect labour demand of South Africa’s exports by destination in terms of skill category The latter is defined according to the broad classification used in the Quantec South African Standardised Industry Database as well as the social accounting matrices (SAMs) used by Thurlow and Van Seventer (2002) and Thurlow (2004) We first present a model that can be considered for evaluating the demand for labour of South African exports This is followed by a discussion of the data, after which results are presented We end with conclusions
Trang 8Exports can be seen as a final demand stimulus to the South African economy There are several ways of examining the impact of a demand stimulus on an economy One way would be to estimate the necessary behavioural relationships econometrically and construct an econometric model of the South African economy However, long-term trends are only available for a limited number of variables, which precludes accounting for detailed structures, and more importantly, the economy-wide evaluation of employment by skill category For our purposes we make use of a model that is based
on a single-point representation of the structure of the South African economy Direct and indirect labour demand is estimated using a fixed coefficient SAM-based demand-driven model
This brings us to the first and most important assumption of this class of models: the structure of this economy is assumed to be fixed, i.e it is unaffected by whatever inputs are used In our case this may be a problem as the size of South Africa’s exports
is sufficiently large to have economy-wide ramifications for economic structure, prices and supply However, our aim is to evaluate and compare labour demand by skill and destination, while holding everything else constant or looking at marginal changes in exports
The structure of this economy is captured by a SAM This SAM was updated by Thurlow (2004) from an earlier SAM (with full description) for 1998 by Thurlow and Van Seventer (2002) A SAM essentially allows for a convenient, single-entry method of conventional national accounting practices with sectoral, factor market, household and other detail added in an internally consistent manner The dimensions
of the SAM used for our purposes are shown in Appendix A In short, we identify
43 industries (and their associated primary products), 3 labour categories and 14 household income classes Labour income earned by each labour category feeds into
a fixed set of household income classes in addition to income derived from capital and other sources such as transfers as part of the household income distribution mapping
This SAM is the underlying database for a fixed coefficient model which can be described as a single linear algebraically equation in the following way:
I is an identity matrix of appropriate size, and
A is a matrix of coefficients describing the inter-relationships amongst the endogenous variables in per unit terms
Trang 9Endogenous variables include:
• Supply of commodities
• Each commodity can be produced by more than one industry
• Each industry can produce more than one commodity (primary and secondary).Each industry uses a range of commodities as intermediate inputs, these include:
• Factor incomes paid by industries
• Income of institutions such as households
• Indirect taxes
• Trade and transport margins
From Equation 1, we can set up a model that allows for the impact of a change in
final demand ΔF to be evaluated for a change in the endogenous variables, ΔX Our challenge is to represent exports by destination as final demand ΔF, which requires
both ΔF and ΔX to be defined as a matrix with i rows for industries and k columns
for destinations instead of a column vector as mentioned earlier (see Appendix B for
a list of destinations)
Equation 2
ΔX = (I – A) -1 * ΔF
A number of auxiliary variables can be derived in a linear way from the change in the
endogenous variable, ΔX, including imports and government revenue Employment
could also be one such variable as it is often assumed that, for all sectors that will indirectly receive a boost as a result of a stimulus (such as exports), average employment:output ratios of the relevant industries apply This is highlighted by the following example If a sector employs 20 000 workers and the gross value of production is R4 billion in a given year, the average employment:output ratio is 5 (workers per R1 million) in that sector Suppose that as a result of an export stimulus, output of the sector increases by R5 million, employment is then assumed to increase
to a demand injection such as the present one
The above observations on potential labour utilisation are not only relevant for the analysis of the impact on employment but also, albeit to a lesser degree, for the additional impact on economic activity as a result of the household income-expenditure loop As mentioned above, additional demand can be absorbed by means
of overtime However, without creating additional employment it is in principle possible that remuneration still increases as a result of higher labour productivity
Trang 10Input-output analysis assumes that there is sufficient capacity available in the backward linkages to satisfy the demand of the stimulus at hand and that prices will therefore remain constant This may be true for most secondary and tertiary sectors, but not necessarily for primary sectors It is possible that agriculture or mining will not expand their production to meet additional demand for their products that are related directly and indirectly to the stimulus It may well be that those sectors will divert domestic demand to an expanding export market Following suggestions by Millar and Blair (1985) we can accommodate this by imposing supply-side constraints
on the multipliers for agriculture and mining The values of supply-constrained output multipliers are usually lower than those of standard multipliers
To conclude this theoretical overview, it should be noted that our main assumption
is that the production structures of the economy remain constant following the modelled stimulus Our SAM analysis is therefore comparatively static by nature and ignores any dynamic effects It also ignores substitution between the production factors labour and capital and between domestic and imported intermediate purchases
In fact, our analysis has a very modest approach as it can answer ‘what if ’ questions while holding other economic conditions constant This approach is adequate for our purposes since we are interested in comparing the impact of exports for a range of destinations, but are not interested in any major policy issues that may or may not fundamentally change the structure of the present economy
Tradedata
Apart from the SAM mentioned above, we need merchandise export data This is available from Customs and Excise at the HS6 level and is mapped to South Africa’s Standard Industrial Classification used for the SAM Exports in services are ignored at this stage, as there is no information on their destination With export data available from 1988 it is also possible to examine demand for labour over the same period
We have selected the period 1998–2002 while keeping the basic SAM constant at the 2000 benchmark In order to do this, export data, which are typically available
in current prices from Customs and Excise, need to be converted to constant prices Here we use the activity level deflators from the Quantec South African Standardised Industry Database that, in turn, are available from Statistics South Africa (Stats SA)
We compare direct with total (direct + indirect) impacts for activities Exports are, however, expressed in terms of commodities We employ the structure of the supply matrix of the SAM in order to determine the direct impact of exports by commodity on output and employment of activities By doing so, we subtract imported commodities
from both domestic and foreign demand in the same proportions It could be argued that exports are less import intensive than domestic demand, but we have no information on this The direct and indirect output and employment associated with foreign demand may therefore be understated Moreover, we ignore monetary gold exports as there is no destination specified, but we include exports of minerals For similar reasons, services exports are also omitted The analysis can be extended to evaluate the same as described above for imports in order to examine the employment creation embodied in import substitution This has not been attempted here, as it
Trang 11is not clear what portion of each commodity’s imports is competing with domestic supply and what proportion is not.
Results
As an introduction, we examine the employment directly and indirectly associated with domestic and foreign demand The question is whether domestic demand is more or less labour and skill intensive than foreign demand We then continue with
an evaluation of employment by skill associated with exports by destination market
Comparingdomesticandforeigndemand
Domestic demand includes household expenditure, demand by the public sector and investment demand We have excluded changes in inventories as they could be kept for foreign and/or domestic demand In the SAM it also includes a residual that
is carried over from the supply-use table published by Stats SA Aggregated across commodity groups, this residual is consistent with the national accounts, but takes
on large values for some groups, such as processed food Finally, we mentioned above that we would ignore gold and services exports due to the lack of information on destination In this introductory comparison, however, we will include these exports,
as we are not interested in their destination at this stage Direct gross value of output
by activity associated with domestic and foreign demand is shown in the first two columns of Table 1
Table1:Directimpactofdomesticandforeigndemandongrossvalueofproduction (2000,Rmillioncurrentprices)anddemandforlabourbyskill
skilled skilled Low- Medium- skilled Medium- skilled skilled High- skilled High- Allskills Allskills Initial
employ-Initial
impact
on
ment,
employ-Initial
impact
on
ment,
employ-Initial
impact
on
ment,
employ-Initial
impact
on
ment,
employ-Initial
impact
on
ment,
employ-Initial
impact
on
ment,
employ-Initial impact on employ- ment, domestic
demand demand foreign domestic demand demand foreign domestic demand demand foreign domestic demand demand foreign domestic demand demand foreign
Trang 12skilled skilled Low- Medium- skilled Medium- skilled skilled High- skilled High- Allskills Allskills Initial
employ-Initial
impact
on
ment,
employ-Initial
impact
on
ment,
employ-Initial
impact
on
ment,
employ-Initial
impact
on
ment,
employ-Initial
impact
on
ment,
employ-Initial
impact
on
ment,
employ-Initial impact on employ- ment, domestic
demand demand foreign domestic demand demand foreign domestic demand demand foreign domestic demand demand foreign domestic demand demand foreign
Trang 13motor vehicles’ final demand is exported In other transport equipment this is even higher Plastics export a large proportion of their final demand, but the foreign share
of clothing’s final demand is relatively low at less than 10%
In terms of employment we use the fixed average employment:output ratios, which we prefer at this stage to the marginal ratios mentioned above because we are evaluating employment associated with existing demand and not hypothetical marginal increases At the bottom of Table 1 it can be seen that we estimate that there are about two million low-skilled workers associated with the final stage of the production of domestic demand (as defined above), compared to 600 000 for foreign demand To place this in the relevant context, we calculate the per unit employment for domestic and foreign demand in row 45 as the ratio of the third and first entry and the fourth and second entry of row 32 for domestic and foreign demand respectively
It can be seen in row 46 of Table 1 that foreign demand is about 4% more low-skilled labour intensive than domestic demand Further down the same row it can be seen that the ratio shifts in favour of domestic demand for the higher-skilled categories, where the use of high-skill labour is about four times more intensive than that for foreign demand This is mainly due to public sector employment, which involves teachers and nurses who are both classified as higher-skilled workers As a result of the weights of the three labour categories in each activity, the total direct employment intensity of domestic demand is about 30% higher than that of foreign demand The total employment directly associated with final demand is about five million workers with the additional two-and-a-half million workers associated with intermediate demand Table 2 shows how the employment in upstream backward linkages is linked
to the two elements of final demand
Table2:Directandindirectimpactofdomesticandforeigndemandongrossvalueof production(2000,currentprices)anddemandforlabourbyskill
skilled skilled Low- Medium- skilled Medium- skilled skilled High- skilled High- Allskills Allskills
employ-Direct+
indirect
impacton
ment,
employ-Direct+
indirect
impacton
ment,
employ-Direct+
indirect
impacton
ment,
employ-Direct+
indirect
impacton
ment,
employ-Direct+
indirect
impacton
ment,
employ-Direct+
indirect
impacton
ment,
employ-Direct+ indirect impacton employ- ment, domestic
demand demand foreign domestic demand demand foreign domestic demand demand foreign domestic demand demand foreign domestic demand demand foreign
Trang 14skilled skilled Low- Medium- skilled Medium- skilled skilled High- skilled High- Allskills Allskills
employ-Direct+
indirect
impacton
ment,
employ-Direct+
indirect
impacton
ment,
employ-Direct+
indirect
impacton
ment,
employ-Direct+
indirect
impacton
ment,
employ-Direct+
indirect
impacton
ment,
employ-Direct+
indirect
impacton
ment,
employ-Direct+ indirect impacton employ- ment, domestic
demand demand foreign domestic demand demand foreign domestic demand demand foreign domestic demand demand foreign domestic demand demand foreign
Employ-46 foreign/Ratio
Sources:SAM(output),SouthAfricanStandardisedIndustryDatabase(Quantec,employmentandowncalculations) 1 InTable2wetakeintoaccountthedirectandindirectbackwardlinkageupstreamknock-oneffectsofdomesticand foreigndemand.Itcanbeseenthatthegrossvalueofproductionassociatedwithdomesticdemandisestimatedtobe
Trang 15R950billion, 1 whilethatofforeign(non-goldmerchandise)demandisR630billion.Thetotalgrossvalueofproduction estimatedbytheSAMdatabaseisaboutR1600billion.Intermsofemploymentitcanbeseeninrow44thatwith 4,7 million workers domestic demand contributes about 64% of the total demand for labour in the South African economy,estimatedheretobeabout7,3millionworkers 2 Therest,i.e.35%ofemployment,isassociatedwithexports. Thehighintensityoflow-skilledlabourcausesexportstomakeamuchhighercontributiontoemploymentthanto theGDP.Inrow46itisreportedthatexportsaremoreunskilledlabourintensiveby12%,whileoverallitislesslabour intensiveby15%.Theloweroveralllabourintensityisentirelyduetotheskilledandhighlyskilledlabour,astheyare requiredlessforexportthanfordomesticdemand.Again,wewouldliketostressthattheclassificationofnursesand teachershasalargerroletoplayinthisoutcome.
As a matter of interest we also consider the impact of a 1% marginal change in demand (domestic and foreign) Agriculture and mining are supply-constrained and the impact
on employment is measured by using marginal employment:output ratios based on estimated employment:output elasticities, as explained earlier Table 3 below shows the highlights of this exercise, but we only report the full impact summary results for reasons of convenience.3 Although absolute values are not comparable to the values given in Tables 1 and 2, it can be seen that the combination of the supply constraint
on primary sectors and marginal employment:output ratios has a significant impact
on the outcome The ratio of low-skilled labour intensity (the demand for low-skilled labour to the value of the initial impact) to domestic demand is now 600 (workers per R1 billion), compared to 2 100 in the full-average version (see row 45 of Table 2) Similarly, the low-skilled employment intensity of foreign demand is now 500 compared to 2 400 This suggests that per unit of initial demand, exports have become relatively less low-skilled labour intensive when marginal demand injections under supply constraint from primary sectors are compared with average unconstrained injections, as the ratio of foreign to domestic employment intensities drops from 1.04
to 0.82 The employment intensities are also lower for the other skill categories, and
as a result, the overall labour intensity of exports drops to 57% of domestic demand compared to 85% in the full average configuration
Table3:Directandtotalimpactofdomesticandforeigndemandongrossvalueof production(2000,currentprices)anddemandforlabourfollowinga1%increasein finaldemandandexportsin2000
skilled skilled Low- Medium- skilled Medium- skilled skilled High- skilled High- Allskills Allskills Impacton
employ-Impacton
ment
employ-Impacton
ment
employ-Impacton
ment
employ-Impacton
ment
employ-Impacton
ment
employ-Impacton
ment
employ-Impacton employ- ment Domestic
demand demand Foreign Domestic demand demand Foreign Domestic demand demand Foreign Domestic demand demand Foreign Domestic demand demand Foreign
Direct+indirect 8,158 3,387 5,024 1,719 12,790 3,275 7,395 950 25,209 5,944 Employment
perunit 615.78 507.50 1,567.82 966.84 906.45 280.31 3,090.04 1,754.66Ratioforeign/
Sources:SAM(output),SouthAfricanStandardisedIndustryDatabase(Quantec,employmentandowncalculations)
The reason for the lower low-skilled employment intensities in particular is two-fold: firstly, by imposing supply-side constraints on the primary sectors, we are ignoring the impact on production and employment of agriculture, an important employer of
Trang 16low-skilled labour Secondly, the marginal employment:output ratios derived from employment:output elasticities, estimated at the sectoral level, implicitly give more weight to some compared to other sectors, the composition of which will differ when comparing domestic to foreign demand.
EmploymentbyskillassociatedwithSouthAfrica’sexportstoselecteddestinations
Our next interest is in the employment by skill embodied in current South African
exports by destination As before, we are initially not concerned with the impact of
a marginal change in final demand on the demand for labour, but rather measure the employment that corresponds to existing sets of final demand expenditures For this purpose we start by employing the basic model as outlined above in Equation 1, i.e without marginal employment:output ratios or supply-side constraints Later we compare these results with the potential employment-creating effects on employment
by skill of marginal changes in exports by destination
To start with, we show the aggregate direct and indirect impact on output in Table 4.4 In the last column of the first tableau it can be seen that the total value of exports at constant 2000 prices increased from R122 billion in 1998 to R160 billion
in 2001, but subsequently fell back to R157 billion in 2002.5 Note that we are dealing here (and in the rest of this paper) with merchandise exports, as opposed to exports
in services in Tables 1-3 The lion’s share of merchandise export is destined for the
EU, with large shares also destined for East Asia, NAFTA and SADC, followed by the Middle East and the Rest of Africa South Central and South East Asia, as well as South America and Australia & New Zealand play a less important role in the export basket of South Africa
Applying Equation 1 to the export values in tableau 1 of Table 4 yields the gross value of production associated with the exports by selected destination and shown
in tableau 2 The economy-wide gross value of production in constant 2000 prices associated with total exports peaks at around R385 billion in 2001, after which it appears to take a small step back to about R380 billion in 2002 The values in the second tableau include the initial exports shown in the first tableau The difference between the values in the two tableaus can be attributed to the upstream backward linkage knock-on effects The period average multipliers of exports shown in the first tableau are presented in the last row of the table Note the variation in the multipliers The reason is the result of the different composition of the export baskets to each destination One possible explanation could be that higher-than-average multipliers are reported for exports to Asian and South American destinations, partly due to a relatively high proportion of basic metals in the export baskets to these destinations The relatively high multipliers for these commodities could in turn be related to the relatively high use of local inputs such as electricity, coal and ore On the other hand, exports to African destinations are characterised by relatively low multipliers Here, there is a higher proportion of machinery and other products in the export basket, which tend to rely more on imported inputs, and as a result, the leakages are higher Also note the decline in the gross value of production associated with exports in 2002
Trang 17Table4:Directandtotal(direct+indirect)grossvalueofproductioncorrespondingto SouthAfrican(non-gold)exportstoselectedregions(Rmillion,2000constantprices)
Region SADC* Restof Africa EU* East Asia Central South
Amer- tralia
Aus-&New
land RoW* Total
averages)
Sources:SAMandowncalculations
45 40 35 30 25 20 15 10 5 0 SADC Restof