The effects of shock in strikes on non-agriculture employment, output, and inflation in South Africa: A structural analysis of Bayesian VAR models

Abstract

AbstractThis study empirically addresses claims about the effects of strikes on output growth, inflation, and non-agricultural employment in South Africa using a structural analysis of Bayesian VAR models with a Normal inverted Wishart prior for the period 1982–2018. We find empirical support for a strikes shock’s transitory negative impact on the country’s output growth. In any case, this was not contested. Our findings, however, contradict the claims that strikes ensue inflation and unemployment in South Africa. Precisely, the findings show that a strikes shock has a positive transient impact on non-agriculture employment but has no effect on inflation. The inflation finding suggests that strikes do not cause a wage-price spiral because the workers’ bargaining power is weak to influence a significant wage increase settlement that can trigger prices. The employment finding implies a negative net change in the number of strikers after a settlement rather than an absolute increase in non-agriculture employment. These findings reveal that strikers resume work with unfulfilled wage increase demands. Hence, the burden borne by companies as a result of strikes is mainly due to lost production rather than a substantial increase in the wage bill.

Keywords

• bayesian models
• inflation
• non-agriculture employment
• Normal inverted Wishart prior
• output
• South Africa