Permanent productivity shocks, migration and the labour wedge: business cycles in South Africa

The findings of this study are as follows. First, permanent productivity shocks play a dominant role in South African business cycles. Second, the migration outflow has a negative effect on permanent productivity shocks. Third, a labour wedge that represents labour market inefficiency is significant in South Africa. Fourth, the labour wedge has a positive effect on the migration outflow. These findings are consistent with the hypothesis that labour market inefficiency in South Africa pushes workers out of the country and permanently influences the country's labour effectiveness, thereby driving South African business cycles.