/ 2 June 2022

SA’s rising unemployment needs a fresh solution

South Africa's official unemployment rate rose from 24.1% in the fourth quarter of 2013 to 25.2% in the first quarter of 2014.

South Africa is at a crossroads after 28 years of failed economic policies. If the government continues with its suicidal policies — inflation targeting, structural reforms and austerity — I estimate that there will be 17-million unemployed people by 2030. The expanded unemployment rate will increase to more than 50%. If it develops a short-term solution to the immediate crisis at Eskom and charts a new path towards economic development, the country can achieve full employment by 2035. 

According to the latest labour force survey from Statistics South Africa (Stats SA), there were 12.4-million unemployed people during the first quarter of 2022. The expanded unemployment rate was 45.5%. There were unemployment rates of: 75.1% for youth, 50.1% for black Africans and 53.7% for black African females. The absorption rate, which measures the percentage of the working age population that is employed, was 37.3%. In the Eastern Cape, it was 28.3%. The average for upper middle-income countries is 60%.

In three provinces — Eastern Cape (52.6%), Mpumalanga (51.6%) and Limpopo (50.9%) — more than half of the labour force was unemployed. There are three ways to slice the latest unemployment data. 

First, a comparison with the fourth quarter of 2021 shows that the economy created 370 000 jobs during the first quarter of 2022. But since the labour force increased by 332 000, the number of unemployed people declined by only 47 000 people. Three months after President Cyril Ramaphosa said in his State of the Nation Address that the government cannot create work, the community and social services sector, in which the public sector is the largest component, created 281 000 jobs.

Malerato Mosiane, the chief director of labour statistics at Stats SA, said the headline number included 86 000 jobs in health and social work, 68 000 jobs in public administration and 66 000 in education, where assistants were employed under the Presidential Employment Stimulus (PES) programme. StatsSA also employed thousands of field workers for the 2022 census. After shedding 781 000 jobs between December 2008 and December 2021, the largest decline of any sector during the period, manufacturing created 263 000 jobs — an implausible 20% jump in one quarter. Trade created 98 000 jobs. But jobs were shed in private households (186 000), finance (72 000) and construction (60 000). 

Second, since the start of the Covid-19 lockdown at the end of March 2020, the economy has shed 1.5-million jobs with all sectors laying off workers. The largest job losses were in construction (270 000), private households (244 000), trade (226 000) and manufacturing (127 000). Third, the most revealing analysis is from the fourth quarter of 2008, when there was an unemployment rate of 28.7% after the economy had created 3.1-million jobs from March 2003. Since then, the labour force has increased by 6.6-million people, but the economy created only 145 000 jobs. As a result, the number of unemployed people has increased by 6.5-million since the fourth quarter of 2008. 

There were job losses of 42 000 in the formal sector and 304 000 in private households. The informal sector, which can be seen as disguised unemployment, created 453 000 jobs. Agriculture created 37 000 jobs. A different sectoral breakdown shows that community and social services (715 000) and finance (563 000) created the most jobs. The largest jobs losses were in manufacturing (518 000), private households (304 000), trade (341 000) and construction (203 000).

South Africans must understand the scale of the crisis. Unemployment is a macroeconomic policy issue that we cannot tackle through projects. There is a relationship between gross domestic product (GDP) growth and employment. An employment multiplier measures the percentage increase in employment that is associated with a one percentage point increase in GDP. It will require an annual GDP growth rate of about 5% a year just to prevent the unemployment numbers from rising or to accommodate new entrants into the labour market. Also, economic growth alone will not be enough to address the crisis. With a GDP growth rate of 6% a year there would still be 11.3 million unemployed people by 2030.

In a forthcoming paper for the Social Policy Initiative, I propose three macroeconomic policy measures to confront the crisis. First, there must be a new macroeconomic policy framework, which has an annual GDP growth target of 6% that is binding on the Treasury and the Reserve Bank. Since infrastructure projects and industrial policies take time to implement, the quickest way to get to 6% would be to implement a basic income grant (BIG) that is phased in at the three official poverty lines over three years. A BIG would increase GDP growth to 5.2% a year over three years and create 2-million jobs — 1.3-million more than would have been created without it. To ensure sustainability of the BIG beyond the implementation period, the government must increase public investment to between 10% and 15% of GDP or whatever is required to support a total investment of up to 30% of GDP. 

Second, there must be aggressive industrial policies that steer production towards labour intensive sectors and increase the employment multiplier. With 6% GDP growth and an employment multiplier of one, there could be 4.3 million unemployed people and an unemployment rate of 11.7% by 2035. With a multiplier of 1.1 times, the unemployment rate could decline to 4.4%, a level that is close to full employment. Third, the government must amalgamate all its public employment programmes which cost about R25-billion a year, according to the Treasury, and provide a job guarantee. 

These programmes include the PES, the Expanded Public Works Programme
(EPWP), the Community Work Programme and the Jobs Fund. The government must restructure the EPWP to provide full-time jobs and pay participants a living wage. They currently receive less than the minimum wage. The government must establish a new quasi-public institution — with professional management and civil society oversight — that will become an employer of last resort and develop the capacity to create up to four million full-time jobs by 2030. In practice, the new institution would create the residual number of jobs that cannot be created through higher GDP growth and industrial policies. 

The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.