The results seem justifiable due to the constraint posed by rising labour costs and the resulting
continuous increase in unemployment, albeit that the trends are starting to subside. This
declining rate of employment is of both a structural and cyclical nature. A significant part (the
major portion) of the South African labour force is unskilled and unskilled labour is increasingly
expensive relative to skilled labour. Apart from the fact that a significant component of
unemployment in South Africa is structural in nature, the growth in GDP has been, and will
continue to be, inadequate to create sufficient job opportunities to alleviate the unemployment
problem. The period of economic sanctions and disinvestment, resulting in the outflow of
skilled labour (referred to as the “brain-drain”) and other consequences, has only intensified the
problem.
Of course, having used the actual capital stock, rather than potential capital, we have further
limited the ability of the economy to expand beyond the constraints of the labour market. Our
feeling is that the South African capital market, characterised by an inability to attract foreign
direct investment, low household savings and the impending further restrictions consequent of a
burgeoning trade deficit, is too severely hampered and in its present state operates at or near full-
capacity. However, such a discussion is beyond what this paper intends to achieve and we will
leave the empirical proof of these assertions to further research. Suffice it to say, the restrictions
imposed by the labour market are more than adequate so prevent South Africa from reaching a
sustainable growth of 7 per cent per annum.
5. POLICY INTERVENTION
In light of these labour market constraints, what can be done so as to alleviate them and as such
raise the potential of the South African economy towards the goal of 7 percent growth. The
aforementioned characteristics of the South African labour situation suggest a labour market that
has effectively lost its capacity to perform its allocative, informational and distributional functions