Can government turn unemployment around?

Although the economy is in recovery, the private sector still seems nervous about employing people.

Employment is known as a lagging economic indicator because jobs don’t materialise as soon as the economy improves. But South Africa has now experienced positive growth for five consecutive quarters, has a 30-year-low interest rate and hosted the Soccer World Cup, so we should really be looking at a better employment outcome, according to Kevin Lings, an economist at Stanlib.

Lings was commenting on the third-quarter Labour Force Survey, released by Statistics South Africa this week.
This survey measures employment and unemployment in the informal and small-scale subsistence farming sectors as well as the formal sector.

According to the survey, employment is down relative to the second quarter. Q3 statistics show that 17,37-million people are economically active (down 91 000 relative to Q2) and 12,97-million are employed (down 86 000 relative to Q2).

About 4,39-million are currently employed. This means the official unemployment rate is now at a whopping 25,3%, worsening from a revised 25,2% in Q2 and 24,4% in Q3 last year. This is the highest rate of unemployment in the country for the past five years.

With our already unacceptably high unemployment rate, we are looking at a devastating scenario. “Clearly, job creation is not merely a function of interest rates or the cost of capital,” says Lings. “Other important policies play a crucial role in facilitating job creation: fiscal, labour, education, competition, industrial, trade, exchange rate and so on. Asking monetary policy to consistently solve all of South Africa’s economic woes is unfair and unrealistic.”

Most of the job losses occurred in the formal sector (45 000) and the rest occurred in private households (38 000) and the informal sector (14 000). The agricultural sector was the only sector gaining—10 000 jobs, which probably relates to the improved agricultural season.

Government has just unveiled its plan to create five million jobs over the next five years, in a bid to reduce unemployment from a quarter of the workforce to 15%. But Lings is not convinced the plan fully addresses key obstacles. “I would highlight the crisis in education and lack of skills, the lack of emphasis on small/medium business development and role of entrepreneurs,” says Lings. “Lastly, the need to encourage private-sector fixed investment is vital to alleviating the unemployment problem.”

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