Does Human Capital Protect Workers against Exogenous Shocks? Evidence from Panel Data on South Africa during the 2008-2009 Crisis

Ronald Leung, Marco Stampini and Desire Vencatachellum

South African Journal of Economics, 2014, vol. 82, issue 1, 99-116

Abstract: The financial and economic crisis of 2008 and 2009 took a heavy toll on the South African economy. The economy contracted for the first time since 1998 and entered recession during the fourth quarter of 2008. The gross domestic product contraction was soon transmitted to the labour market. Between the second quarters of 2008 and 2009, employment fell by 3.8%. However, not all individuals were hit with the same intensity. Using panel data from a quarterly labour force survey unique in the African context, we find that human capital (i.e. education as years of schooling and workforce experience) provided a buffer against the shock. After controlling for observable characteristics, education and experience showed the potential to entirely offset the effect of the recession on the likelihood of employment. This has important policy implications, as it strengthens the case for strategic investments in human capital and helps identify the unskilled as having the greatest need for social safety net interventions during a recession.

Date: 2014
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