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The economy-wide impacts of the labour intensification of infrastructure expenditure in South Africa

Anna McCord, Dirk Ernst van Seventer

University of Cape Town, Centre for Social Science Research

CSSR Working Paper No. 93, December 2004

Posted with permission of the Centre for Social Science Research, University of Cape Town.
More details on the Centre and its publications can be obtained from: www.cssr.uct.ac.za
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Abstract

This paper examines the performance of public works in addressing both micro and macroeconomic policy objectives relating to growth, employment and poverty reduction in South Africa. The microeconomic analysis suggests that while participation in a public works programme may contribute to a reduction in the depth of poverty, with improvements in participation in education and nutrition, and have positive psychosocial benefits, the impact of a short-term programme may not be significant in terms of a reduction in headcount poverty or improvements in asset ownership (material or financial). In this case the public works programme income may function essentially as a temporary wage shock, since the insurance function of the transfer is limited by the short duration of the employment period. From a macroeconomic perspective, a social accounting matrix (SAM) is used to estimate the impact of shifting R3 billion expenditure from machine to labour based infrastructure provision over a one year period. The SAM indicates that the impact would be to increase employment by 1%, the income of the poorest quintile by 2% (if employment were exclusively targeted to this group) and GDP by 0.1%. While these are positive outcomes, they are not significant in terms of South Africa’s overall economic and employment performance. The conclusion is drawn that from both a macro and microeconomic perspective, there is reason to be cautious about the potential of a national public works programme based on shifting the labour intensity of infrastructure provision, and offering short-term employment opportunities, to have a significant impact on poverty, employment or growth.


Introduction

This paper starts by outlining the nature of the labour market situation in South Africa, and characterising it as a chronic and structural problem. Next the policy response is briefly reviewed, and the inconsistency between the accepted function of public works in the context of transitional labour market crises in the international policy discourse, and the use of this instrument in the South African context, highlighted.

This problem is investigated from both the micro and macro perspectives through the use of survey and technical programme data from a case study public works programme with similar characteristics to the proposed national public works programme. The programme is interrogated through the discussion of survey data analysis in order to gain microeconomic insights into the household level poverty and labour market impacts of programme participation1, while a social accounting matrix (SAM) is used to model the anticipated macroeconomic impacts in terms of growth, income and demand for labour. Finally the key findings from both analyses are reviewed and the implications for the attainment of policy objectives discussed.



Footnote:

  1. For a full discussion of the survey findings see McCord 2004.



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