Capital/Skills-Intensity and Job Creation: An Analysis of Policy Options

This paper explores how growth and job creation depend on private sector choices concerning how to produce, that is the relative proportions of capital and skilled or unskilled labour employed. South Africa's rising capital intensity and increased demand for skilled labour are part of a global phenomenon, although South Africa's rising capital intensity appears to be greater than expected given international experience. An analysis of the capital-to-labour ratio by major sectors of the economy documents substantial heterogeneity in sectoral trends. The two education-intensive sectors of the economy - financial services and trade - are growing more rapidly but without significant increases in capital intensity, and creating jobs. The sectors that are not education-intensive - namely mining, construction and manufacturing - are growing more slowly as their capital intensity increases, and shedding jobs. The paper develops a theoretical model that offers one possible explanation for this phenomenon. In the model, job creation depends on: the rate of capital investment; the nature of productivity growth; and the degree of substitutability of capital and labour. It is shown that rising investment rates are not sufficient to generate job creation. If productivity growth is labour- augmenting and labour cannot be readily substituted for capital, more investment can lead to job losses. The final section of this paper examines policy options.

  • Authors: Michael Samson, Kenneth Mac Quene and Ingrid van Niekerk
  • Year: 2001
  • Organisation: TIPS/EPRI/USAID
  • Publisher: TIPS
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