The role of business-specific attributes on job creation in South Africa

Abstract: For years, South Africa has been battling with the challenge of rising unemployment. Meanwhile, the national government continues to see small businesses as key engines of job creation. Using secondary data from Small Business Project’s (SBP’s) Small and Medium Enterprise (SME) Growth Index for 2012, 2013 and 2015, this study examines whether small businesses in South Africa play a key role in creating jobs through investigating the relationship between the size of a business, its age, turnover growth, total costs of labour and production innovation and job creation. The results show that small businesses play a key role in job creation. The findings indicate that the size of a business, turnover growth and total cost of labour are the key factors that enable small businesses to be more likely to create jobs. In addition, the results show that businesses that increase their turnover are more likely to create jobs than those that record a decrease in their turnover or no growth for a given year. Likewise, the results show that total labour costs of a business have a positive relationship with job creation. Even though reviewed empirical studies have shown that product innovation in a business encourages job creation, this study discovers that business production innovation has no statistically significant relationship with job creation. However, a cross-correlation analysis of the data shows that the older a business is, the more likely it is to invest in the development of new products or services because it might be at a better place financially. Internationally, young small businesses play a disproportionate role in creating jobs, but this study finds that in South Africa it is older small businesses (i.e., those that have been operating for 10 to 20 years) that play a disproportionate role in creating jobs. These results indicate significant reforms are needed to help more small businesses to grow so that they can be able to create more jobs.M.Com. (Development Economics