Public service wage bill and economic growth: Evidence from South Africa

This study employs an autoregressive distributed lag model to investigate the long-run and short-run economic growth impacts of the public service wage bill in South Africa. The annual time series data used ranges from 1983 to 2019 obtained from the South African Reserve Bank online dataset. The study also controls for other government expenditure items, and gross fixed capital formation. It does not find a negative relationship between wage bill expenditure and economic growth, as is widely assumed. However, the impact of the wage bill even though positive, is significantly small compared to government expenditure on health, social protection, education and investment, indicating a possibility of a crowding-out effect. This is the case in both the short and long run. Recommendations are made for structural reforms aimed at improving spending efficiency and effectively managing the wage bill to ensure that public services are delivered in a fiscally sustainable and cost-effective fashion.