Relationship between inflation rate and wage rate before and after inflation targeting periods in South Africa
| dc.contributor.author | Okosa, Jessica Onyinyechi | |
| dc.date.accessioned | 2024-07-15T10:01:32Z | |
| dc.date.available | 2024-07-15T10:01:32Z | |
| dc.date.issued | 2023 | |
| dc.description | A dissertation submitted to the Faculty of Commerce, Administration and Law in fulfilment of the requirements for the Degree of Master of Commerce in the Department of Economics at the University of Zululand, South Africa [2023]. | |
| dc.description.abstract | The increasing number of trade unions with strong/collective bargaining power in recent times have put pressure on wage rate, resulting in rate rise in South Africa, thereby causing rate rise in inflation from both the supply and demand sides with its attendant output/productivity deterioration. Consequently, this study complements existing literature by investigating the long and short-run linear and nonlinear relationships between wage rate and inflation rate before and after inflation targeting periods in South Africa. in a sample of 170 observations spanning from 1980Q1 to 2022Q1. The study quantitative, anchored on archival design, with the data sourced from the World Development Indicators (WDI) and the South African Reserve Bank (SARB) It employed the linear and the nonlinear autoregressive distributed lag (LARDL & NARDL) estimation techniques in the analysis to test these objectives. The findings made in this study have both short-run and long-run implications. This study found a positive linear and nonlinear relationship between inflation and wage rate in South Africa for the period under investigation. This implied that although both indicators significantly raise each other during the short-run and long-run, the magnitude of the impact of inflation on wage rate was higher than that of wage rise on inflation. Therefore, higher rates of inflation caused workers/trade unions to demand for higher wages and not vice versa. Hence, the high inflation rate is more of demand-pull rather than supply/cost-push. This study also found a non-persistent inflation rate in the long-run. This implied that adaptive expectation, rather than rational expectation, is the main driver of economic agents’ price setting behaviour. This assertion was further strengthened by significant positive impact of the log of bank rate on inflation in the short-run and long-run. Moreover, high productivity was found as a strong panacea for rising wage rate and inflation rate, whereas the adoption of inflation targeting from the first quarter of the year 2000 in South Africa emitted no significant impact on the wage-inflation nexus. This was attributed to a credit crunch following the 2007/08 global financial crisis that led to policy failures and, hence, the inability of the monetary policy rate to control wage rate. The negative impact of the cumulative negative changes in wage rate on inflation implies that, over the long-run, negative changes in unit labour costs had a marginally stronger dampening effect on inflation relative to a positive change, which in relative terms has a marginally smaller positive effect. Hence, there was weak evidence of an asymmetric/nonlinear impact of wage rate on inflation rate, and vice versa, in the long-run with no short-run nexus. This implied that positive and negative changes in the two indicators are more likely to have a trade-off with each other in the long-run than during the short-run. Finally, the findings from the last objective of this study relating to the nature of the relationship between inflation, wage growth and productivity before and after the inflation targeting eras in South Africa revealed that the downward nexus among inflation, wage rate and bank rate during the early 1980s could be attributed to structural transition to quantitative approach to monetary policy in 1985. Moreover, high volatility recorded among productivity, inflation rate and wage rate in 2020 could be attributed to the structural shock of the COVID-19 pandemic. Based on these findings, the study recommended that government should reduce the cost of governance to keep inflation low, improve productivity through market liberalisation and tax holidays, and incentives to firms in order to keep wage rate and inflation rate low. It is also recommended that capital and money markets reform be done in order to make inflation more responsive to monetary aggregates, and financial system be liberated to cushion the effect of credit crunch that might arise from financial crisis. The findings that emerged in this study have both short-run and long-run implications. The short-run implications included rising inflation, high wage differentials among workers and job loses especially among private establishment. the long-run implications included policy conflicts structural collapse, institutional failures and high tax liability in the future as a contractionary fiscal policy mechanism to cushion demand pull-inflation. OKUHUNYUSHWE NGOLIMI LWESIZULU ISIFINGQO Ukwenyuka kwamanani ezinyunyana ezinamandla okuxoxisana ngokuhlanganyela ezikhathini zakamuva nje, kuye kufake ingcindezi ekukhuphukeni kwezinga lamaholo eNingizimu Afrika. Ngaleyo ndlela kubangele ukwehla kwamandla emali kuze kukhuphuke kuzo zombili izinhlangothi zokuhlinzeka nezidingo kanye nokwehla komkhiqizo. Ngakho-ke, lolu cwaningo luhambisana nezincwadi ezikhona ngokuphenya ubudlelwano obude nobufushane obulandelanayo nobungaqondile phakathi kwezinga lomholo kanye nezinga lokwehla kwamandla emali ngaphambi nangemuva kwezikhathi eziqondiswe ukwehla kwamandla emali eNingizimu Afrika. Esampulini lokubhekwa okuyi-170 kusukela ngo-1980Q1 kuya ku-2022Q1. Imininingwane ithathwe kwi-World Development Indicators (WDI) kanye neSouth African Reserve Bank (SARB) kanti okuqondile nokungaqondile kubambezela ukusatshalaliswa (LARDL & NARDL) kwamasu okulinganisa asetshenziswayo ukuze kufezwe lezi zinhloso. Okutholakele kulolu cwaningo kunemithelela yesikhathi esifushane neyesikhathi eside. Lolu cwaningo luthole ubudlelwano obuhle bokuqondile nokungaqondile phakathi kokwehla kwamandla emali nezinga lamaholo eNingizimu Afrika ngesikhathi sophenyo. Lokhu kuveza ukuthi nakuba izinkomba zombili ziphakamisana kakhulu ngesikhathi esifushane nangesikhathi eside, ubukhulu bomthelela wokwehla kwamandla emali, ezilinganisweni zamaholo bukhulu kunalelo lokwenyuka kwamaholo ekwehleni kwamandla emali. Ngakho-ke, amazinga aphezulu okwehla kwamandla emali abangela abasebenzi/izinyunyana zabasebenzi ukuba zifune ukukhushulelwa amaholo hhayi ngokuphambene nalokho. Ngakho-ke, izinga eliphezulu lokwehla kwamandla emali liwukudonseka kokufunwa kakhulu kunokuletha/ukucindezela izindleko. Lolu cwaningo luphinde lwathola izinga lokwehla kwamandla emali elingaphikeleli ngokuhamba kwesikhathi. Lokhu kusho ukuthi ukulindela okuguquguqukayo kunokulindela okunengqondo, loku kuyinhloko yokuphatha ukuhlelwa kwentengo ngama-ejenti ezohwebo. Lokhu kugomela kuphinde kuqiniswe umthelela omuhle werekhodi lesilinganiso samabhange ekukhuphukeni kwamandla emali esikhathini esifushane nangesikhathi eside. Ngaphezu kwalokho, ukukhiqiza okuphezulu kutholakale njengekhambi eliqinile lokwenyuka kwezinga lamaholo kanye nezinga lokwehla kwamandla emali, kuyilapho ukwamukelwa kokwehla kwamandla emali okuqondiswe kwikota yokuqala yonyaka wezi-2000 eNingizimu Afrika akuzange kube nomthelela omkhulu ekuxhumaneni nokwehla kwamandla emali kwamaholo. Lokhu kudalwe ukushoda kwezikweletu kulandela inhlekelele yezimali emhlabeni wonke ka-2007/08 eyaholela ekuhlulekeni kwenqubomgomo, yingakho nokwehluleka kwezinga lomgomo wezimali ukulawula izinga lamaholo. Umthelela ongemuhle wezinguquko ezingezinhle ezinqwabelene ezilinganisweni zamaholo ekukhuphukeni kwamandla emali, kusho ukuthi, ngokuhamba kwesikhathi eside, izinguquko ezingezinhle ezindlekweni zabasebenzi zinomphumela odambisa kancane ukwehla kwamandla emali uma kuqhathaniswa noshintsho oluhle, okuyinto ngokwemibandela inomphumela omuhle kodwa omncane. Ngakho-ke, kunobufakazi obubuthakathaka bomthelela ongalingani/ongaqondile wesilinganiso samaholo esilinganisweni sokwehla kwamandla emali futhi okuphambanayo, esikhathini eside ngaphandle kwe-nexus yesikhashana. Lokhu kusho ukuthi izinguquko ezinhle nezimbi kulezi zinkomba ezimbili maningi amathuba okuthi zibe nokuhwebelana ngokuhamba kwesikhathi kunangesikhathi esifushane. Okokugcina, okutholwe enhlosweni yokugcina yalolu cwaningo mayelana nesimo sobudlelwane phakathi kokwehla kwamandla emali, ukukhula kwamaholo kanye nokukhiqiza ngaphambi nangemva kwezikhathi eziqondiswe ekwehleni kwamandla emali eNingizimu Afrika kuveza ukuthi ukwehla kokwehla kwamandla emali, izinga lamaholo kanye nezinga lamabhange ekuqaleni ngowezi-1980 kungathiwa kungenxa yoshintsho lwesakhiwo endleleni yokulinganisa yenqubomgomo yezimali yangowezi-1985. Ngaphezu kwalokho, ukuntengantenga okuphezulu okurekhodiwe phakathi kokukhiqiza, izinga lokwehla kwamandla emali kanye nezinga lamaholo ngowezi-2020 kubangwe ukushaqeka kwesakhiwo sobhubhane lwe-COVID-19. Ngokusekelwe kulokhu okutholakele, ucwaningo luncoma ukuthi uhulumeni kufanele ehlise izindleko zokubusa ukuze agcine ukwehla kwamandla emali kuphansi, athuthukise ukukhiqiza ngokukhululeka kwezimakethe kanye namaholide entela, nezinxephezelo kumafemu ukuze kugcinwe izinga lamaholo kanye nezinga lokwehla kwamandla emali liphansi. Kuphinde kunconywe ukuthi kushintshwe izimakethe zemali kanye nezimakethe zezimali ukuze ukwehla kwamandla emali kuphendule kangcono izilinganiso zemali, futhi kukhululwe uhlelo lwezezimali ukuze kuncishiswe umphumela wokuwohloka kwezikweletu okungase kuvele ngenxa yezinkinga zezimali. Amagama Angukhiye: Ukwehla kwamandla emali, izinga lamaholo, ukukhiqiza, i-NARDL, iNingizimu Afrika. | |
| dc.identifier.uri | https://uzspace.unizulu.ac.za/handle/10530/2565 | |
| dc.language.iso | en | |
| dc.publisher | University of Zululand | |
| dc.title | Relationship between inflation rate and wage rate before and after inflation targeting periods in South Africa | |
| dc.title.alternative | Inflation and wage rates in South African economics | |
| dc.type | Thesis |