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Does Human Capital Protect Workers against Exogenous Shocks? South Africa in the 2008 – 2009 Crisis

Ronald Leung, Oxford Center for Study of African Economies, Marco Stampini and Désiré Vencatachellum, AfDB

The financial and economic crisis of 2008 and 2009 has taken its 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 GDP contraction was soon transmitted to the labor market. Between the second quarters of 2008 and 2009, employment fell by 3.8 percent. However, not all individuals were hit with the same intensity. Using labor force survey data unique in the African context, we find that human capital 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 identifying the unskilled as those with the highest need for social safety net interventions during the recession.

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