Labour force and income expenditure surveys released recently show the persistent worsening of both the unemployment rate and income poverty in South Africa.
The official unemployment rate, at 30%, comprises more than 4,5-million members of the labour force, while about 60% of the population lives below a poverty line of R533 a month. Moreover, among the employed, 27% earn an income of less than R5 000 a year.
Even though the recent presentation of the medium-term economic outlook for the country does not include projections for employment, some, like the Economist Intelligence Unit, are projecting a significant rise in the unemployment rate during the next five years.
The income expenditure survey also shows that between 1995 and 2001, income inequality worsened nationally and within all racial groups. This is confirmed by the trend in the Gini Coefficient, which measures income inequality. If the Gini Coefficient equals zero, there is perfect income equality, while a Gini Coefficient of one is an indication of perfect income inequality.
The Gini Coefficient has been worsening in recent years. In 1995, it was 0,596. It has since risen to 0,635 in 2001, giving South Africa the dubious distinction of being one of the most unequal societies in the world.
The rise in income poverty and distribution is closely linked to the rise in unemployment and poorly paid employment. Two principal reasons for increased joblessness are, firstly, policies designed to achieve the restructuring of the economy through export promotion in an increasingly liberalised economy; and secondly, other ”stabilisation” policies that have focused on lowering inflation and the deficit by administering contractionary measures in the economy. Neither of these two policy thrusts has placed an emphasis on job creation.
The first set of policies, which includes trade and industrial policies, has contributed to an increasing recourse to machinery in economic activity. This is clear from an average real growth rate of 8,2% in investment in machinery and equipment during the 1990s, resulting in about 50% of total investment being of this kind in 2000/01.
The second set of policies has resulted in an inappropriately high real interest rate, which continues to seriously dampen the economy’s growth potential. It makes the cost of borrowing for investment high and limits household expenditure, especially on durable goods.
It has also resulted in major real per capita decline in government expenditure. While the government’s real per capita disposable income (income excluding interest on public debt) increased by 9,9% between 1995 and 2001, its real per capita expenditure declined by 7,6% during the same period.
Experience in many parts of the world shows that the danger of achieving orthodox stabilisation goals is an economy with a high unemployment rate that is stuck on a low growth path.
Consequently, South Africa’s growth performance remains much lower than originally envisaged — and at the same time the gap between employment growth and output growth has risen significantly since the early 1990s.
This means that currently, compared with 1990, a much smaller number of jobs is created for every percentage point of economic growth.
This differs significantly from the experience of countries in the Organisation of Economic Cooperation and Development (OECD), whose growth performance now creates twice as many jobs as South Africa’s. It is clear, therefore, that there must be a shift away from the argument that rising unemployment is due largely to the inherited skills shortage of the labour force.
That argument implicitly assumes that with an improvement in skill, employability and employment will increase. But the statistics show that the problem does not necessarily relate to the supply of skilled people, as the demand for all types of labour, whether skilled or unskilled, has declined.
From 1995 to 2001, unemployment has increased at all educational levels above pre-primary. For South Africans with secondary education as the highest completed level, the unemployment rate has almost doubled, from 18% to 32%. For persons with a tertiary technical education the rate has trebled to 15%.
The goal of substantially reducing the unemployment rate will remain elusive unless a strategy of openness, competitiveness and macroeconomic stability is pursued through policies that prioritise employment creation and poverty reduction.
Contrary to the position taken in the 1998 Job Summit, the strategy of employment creation through projects and programmes is too limited in scope and potential to address the massive unemployment problem in the country.
The outcome is very clear. The growth and development summit, scheduled for next month, needs instead to focus on adopting an employment-generating growth strategy that, first and foremost, utilises all macro- and microeconomic policy instruments to enhance growth and its employment intensity.
Additional projects and programmes can then complement such a new thrust for employment creation.
Asghar Adelzadeh is senior policy adviser at the United Nations Development Programme. This article has been written in his personal capacity