The Productivity-Wage Relationship In South Africa: An Empirical Investigation

The aim of this paper is to investigate the empirical relationship between productivity, real wages and unemployment in South Africa using appropriate time series econometric techniques. The value of this approach is that it imposes no a priori theoretical assumptions on the relations between the variables, but rather allows the data to 'speak for themselves'. The results may then be used in one of two ways. Either they allow one to interrogate the validity of the data by comparing the results with well-established labour market models, or - assuming the data is deemed reliable - they can be used to provide evidence for or against labour market theories. This seems however to land one in a 'catch 22' situation, and inevitably the economist has to make an informed assumption about which more is reliable: the data, the theoretical models, or neither. In the present case, the real wage and productivity data are regarded as fairly reliable, but the unemployment series is rather makeshift in the absence of accurate annual data over a long period of time. The long run upward trend in unemployment does however seem plausible.