Does South Africa Have the Potential and Capacity to Grow at 7 Per Cent?: A Labour Market Perspective

The South African NAWRU

The estimate for the NAWRU of the South African economy is given in figure 2. It is increasing
at a steady rate, suggesting severe structural problems in the economy as a whole, and the labour
market in particular.

Figure 2: South African NAWRU

Actual ^- s 'Smoothed (Hodrick-Prescott Filter)

The results imply that an “equilibrium” rate of unemployment, and therefore a unique long-run
NAWRU to which the unemployment reverts in the long run, does not exist. This is in line with
a growing number of empirical studies (Pichelmann and Schuh, 1997) that suggests that the
equilibrium unemployment rate may be described by a non-stationary time-series, incorporating
both a deterministic and stochastic trend component.

This increasing rate is attributed to the hysteresis (Pichelmann and Schuh, 1997) nature of
unemployment in South Africa, which in turn is based on the behaviour of labour market

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