The government’s growth strategy envisages substantial job creation but without drastic intervention the unemployment problem will not be overcome, writes Asghar Adelzadeh of the NIEP in the last in the series of articles on economic policy
TWO questions are fundamental to overcoming the problems of high unemployment and poverty: what are the main macro-economic and labour market factors that constrain job creation and poverty reduction, and what are the main elements of a strategy for employment creation and poverty reduction?
Three broad issues come into play: the structure of the economy, the macro- economic framework and its policies, and the structure of the labour market.
The structural issues constraining employment creation and poverty reduction include persistent low economic growth; high concentration of wealth and decision- making in the real and financial sectors of the economy; substantial increases in the capital-labour ratio in all sectors of the economy since the 1970s, especially in mining and manufacturing; the relatively small increase in labour productivity and, in the case of mining, relative decline; a significant decline in capital productivities in mining, manufacturing and services; a high propensity to import; an underdeveloped home market; and a lack of historical investment in human resource development and social services.
These structural characteristics of South Africa’s economy have directly and indirectly contributed to the overall decline in total employment, with unemployment surpassing 30% of the labour force.
Added to this is the government’s macro- economic strategy and policy framework. Its fiscal austerity programme, tight monetary policy, rapid trade liberalisation approach and dual labour market policy proposals will impose further constraints on growth, job creation and poverty reduction without bringing about the necessary restructuring of the economy that will alleviate our greatest problems: job creation and poverty reduction.
The fiscal policy contained in the growth, employment and redistribution (Gear) strategy has already led to substantial cuts in public spending on social services and infrastructural investment, two important elements in poverty reduction and employment creation (see Business Mail, May 2 to 8). Its disinflationary tight monetary policy will continue to constrain economic growth, job creation and transformation of the financial market (see Business Mail, May 30 to June 5); its accelerated trade liberalisation proposals can potentially lead to de-industrialisation, loss of manufacturing jobs and increased dependence on imports (see Business Mail, April 4 to 10); and its labour market deregulation proposal can end the aspiration of a living wage for the majority of the population, perpetuating high inequality and low economic growth.
The two-headed hydra of unemployment and underemployment is also intrinsically linked to the racial, gender and spatial inequalities, which are directly linked to the characteristics of poverty in South Africa. Notwithstanding the removal of political inequalities, the majority of South Africans continue to feel the economic inequalities in their working lives.
Clearly, the current difficulties of the labour market cannot be divorced from the policies of apartheid that succeeded in dispossessing the majority black population from a self-sustaining economic base while actively undermining its ability to develop a new one. The policies of apartheid consciously created the type, structure and persistence of unemployment and underemployment that we must grapple with today.
While employment creation is not solely a labour-market phenomenon, without a thorough understanding of labour-market factors that currently limit employment, sound and effective policy choices will be fleeting.
At a basic level, the demand for labour is a positive function of the general aggregate demand for the goods and services produced in the economy. The overall stagnation of the economy since the mid- 1980s has severely undermined its ability to create jobs through growth.
Labour demand is further affected by the structure of production, which encompasses at least two crucial aspects, the production technique (the mix of capital and labour) and the organisation of work. Between 1970 and 1996, the capital-labour ratio for the economy as a whole has gradually doubled.
The capitalisation of the production processes has been most dramatic in the mining sector, where capital expenditure as a unit of labour has increased by 230% in constant rand terms. The rise in the mining sector’s capital-labour ratio is followed by the manufacturing sector (up 120%), services (70% up) and agriculture (30% up).
The current organisation of work is part of the legacy of apartheid’s job reservation laws, which created long chains of command, authoritarian control, limited opportunities for black mobility, and limited training for black workers. The consequence is the overabundance of underskilled workers for whom demand is low compared with skilled workers.
Demand for labour also has a very regional aspect, as the largest labour-attracting centres are in metropolitan areas. Others, like the highly capitalised mining areas, provide regional employment, while the rural areas offer fewer and less diverse employment opportunities than anywhere else in the country.
Supply of labour is another factor. In South Africa, significant differences are found in labour-force participation rates across race and gender. White participation rates are higher than those for non-whites, while female participation is significantly lower than males in all racial groups. Additionally, participation is affected by availability, quality, locality and cost.
Availability is largely influenced by the amount of time people spend in informal sector employment (for example domestics and hawkers). However, it is also influenced by the time spent on essential non-working activities. In the absence of infrastructural support, rural women spend a large portion of their day gathering wood and fetching water. Consequently, they have very low participation rates in the formal labour market due parly to this “time poverty” phenomenon.
Participation in the labour market is also determined by the quality of the labour being offered. That is, education, training and skills levels are real barriers to entry in the labour market as well as to duration of labour market participation. Not surprisingly, the incidence of unemployment is skewed towards those with little formal education.
Considering the lack of attention paid to education and training of the black labour force by the apartheid government and the private sector, it is not surprising that despite significant mechanisation of the production process in the past 27 years, production as a unit of capital has declined for all sectors of the economy except agriculture.
Spatial constraints – the disjunction between where potential workers and potential jobs are located – also affect labour force participation rates, especially of blacks and women. Internal migration from rural to urban areas as well as long-term separation and long-distance travel are vivid examples.
Finally, in addition to demand and supply factors, the institutional framework provides a backdrop upon which the labour market operates. The segmented and dual labour market is an institutional reality. The statutory and non-statutory regulation of the labour market (or absence thereof) can assist in changing (or maintaining) this reality.
Labour market regulation affects the level of unemployment as well. For example, the absence of reliable, stable and secure employment greatly affects the need for households to engage in additional activities to meet basic needs. In the absence of important employment benefits (such as health benefits) unnecessary burdens are placed on households to withstand calamity.
The scarcity and inadequacy of training combined with institutionalised racism creates barriers to upward mobility, thus reproducing the cycle of low-wage employment and poverty. Finally, the existence and operation of a dual labour market effectively forces many of the poorest into poverty wages.
This article is based on a National Institute for Economic Policy paper written by Asghar Adelzadeh and Cynthia Alvillar, a labour economist and the NUM’s legal council