The Relationship between Unemployment, Entrepreneurship, Rising Income in South Africa : an Exploratory Study

Although South Africa has made significant progress in transforming a fragmented apartheid society into a rainbow nation by opening opportunities to all South Africans since the dawn of democracy in 1994, its performance on employment leaves much to be desired. It registered an average economic growth rate of 2.8% during the period 1994-2017. Accompanying this growth, real GDP per capita increased by about 30% over that period to R56,020 in 2017. However, employment growth lagged behind GDP growth, resulting in unemployment at 27% in 2017, with shockingly high youth unemployment (SARB, 2018). Entrepreneurship brings together labour and capital in generating income, output and employment. However, entrepreneurship at the SME level is struggling and not expanding fast enough. Given the policy focus placed on entrepreneurship as a mechanism for addressing unemployment and generating income, this paper seeks to establish the nexus between income, entrepreneurship and unemployment in the post-apartheid period. It explores the link by using Granger causality test, correlation and OLS regression analyses. The results show a strong and significant unidirectional causal relationship between entrepreneurship, proxied by Total Entrepreneurial Activity (TEA) and per capita GDP income, suggesting that income growth causes entrepreneurship. The correlation results show a weak positive linear association between the unemployment rate and TEA, and between unemployment and per capita GDP; the regression results reinforce the significant relationship between income and entrepreneurship.