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

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.