Employment and Unemployment In South Africa - …

1 Unemployment in South Africa Descriptors & Determinants PRESENTATION TO THE COMMISSION ON GROWTH AND. DEVELOPMENT. WORLD BANK, WASHINGTON DC, OCTOBER 15TH. HAROON BHORAT. School of Economics &. Development Policy Research Unit, University of Cape Town E-mail: Website: Population: Life Expectancy at birth: GDP (current prices): $255 bill. GNI per capita: $5390. Merch. Trade (% of GDP): Total Debt Service: Internet users: per 1000. OVERVIEW. y A Descriptive and Econometric Overview y Causes of Unemployment in South Africa : A Line-Up of the Usual Suspects y A Menu of Possible Interventions Unemployment Rates Around the World Source: ILO (2007). Unemployment In South Africa : The First Decade of Democracy National Unemployment Rate: 1995-2005. y Unemployed numbered approximately million individuals in 2005. Discouraged work Percent y seekers constitute 42%. of broadly unemployed 1995 2000 2001 2002 2003 2004 2005.

2 Y Data Quality &. Broad Unemployment Narrow Unemployment Reliability. Unemployment Rates In South Africa : Race & Gender 53%. 47%. Male Female Total 0. African White Total Unemployment Rates In South Africa : Age Distribution 1200 34%. 1000. 800. No. of Ue 1995. 600. 2005. 400. 200. 0. 15 18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63. Age Youth Unemployment Rates: The Global Context Source: KILM, 2007. Unemployment Rates by Education Level 60%. 50%. 40%. 30%. 20%. 10%. 0%. Up to grade 11 Matric Tertiary All 1995 2005 % Change Unemployment : Multivariate Independent Variable dF/dx Analysis z Std. Err. Coloured Asian White Female 25-34 years 35-44 years 45-54 years 55-65 years No education to Incomplete GET Complete GET Complete High School Diploma University Degree Metro Lambda The Markers of Unemployment in South Africa y Race, Gender, Age, Location & Schooling serve as the key attributes defining and explaining broad and narrow Unemployment rates in South Africa .

3 Y The failure of the schooling system & in part, the further education & training System (FET) is particularly important for policy formulation. y Differentiating between the unemployed and the unemployable. Two Worrying Footnotes: 1. The Legacy of Apartheid Schooling y A bifurcated schooling system, where Variable/Former disadvantage is still Department African White located within former High School African Schools Pass Rate y Management of schools;. Pupil-Teacher Ratio knowledge infrastructure;. Teacher Quality Schools with User Fees Two Worrying Footnotes: 2. The Composition of Graduate Unemployment y 200,000 (3%) of all Ue African diploma 73%. are graduates' (up from 2% in 1995). y Only 18% of unemployed graduates Other diploma 9% have degrees: Clearly the bulk of the problem African degree is with diplomas and Other degree certificates 12%. 6%. Possible Causes of Unemployment in South Africa y Output & Employment y LFP Growth Rates y Labour Demand-Supply Mismatch y Wages and Employment y The Role of Trade Unions & Bargaining Councils y Labour Regulation y The Nature of Economic Growth Output and Employment Simple GDP Elasticity of Total Employment y No Evidence for Jobless Annual Percentage Change in: Growth Thesis Total GDP Elasticity Employment y For Given Level of Growth, Employment Expansion 1990-1995 Adequate y The Nature of the Growth 1995-2005 Path.

4 Output- Employment Elasticity: Comparable Measures Source: KILM, 2007. Post-Apartheid Labour Supply Trends 1995 2005 Change Target Employment (Oct) (Sep) Growth Absorption ( 000s) ( 000s) Absolute Rate Rate Category ( 000s). Percent Broad Definition Estimates Employment 9 515 12301 2786 Unemployment (broad). 4 239 7800 3561 Labour Force 13 754 20100 6346 Skills-Biased Employment Growth: 1. 25 y Skilled Employment : 20. Share increased from 9 to 11%. 15. 10 y Semi-skilled Employment : Share increased from 59. 5 to 61%. 0. Skilled Semi-Skilled Unskilled y Unskilled Employment : -5. Share declined from 31 to -10 27%. -15. Skills-Biased Employment Growth: 2. Industry-Based Relative Demand Shift Measured by Occupation, 1995-2005 y Between- and within- Between Within Total Share of within sector shifts estimates in Total for 1995-2005: SBTC. Manager Professional evident. Clerical y The nature & trajectory Service of labour demand results Agric.

5 In the co-existence of an Craft excess supply of labour Oper. & A. with a chronic skills Elementary. shortage in the economy Domestic Workers Wages & Employment Wage- Employment Elasticities by Main Sector, 1990-1998. Sector 1990-93 1994-98. y Elasticity value not unusual Mining & Quarrying *. for developing country Manufacturing * estimates Construction * *. Utilities y Translate into, ceteris Commerce,Catering &. Accommodation * parabus, an argument for Transport &. wage adjustments? Communication Financial Services * Community, Social &. *. Personal Services Private Sector Total ** ** Source: Fields et al. 1999. Trade Unions & Bargaining Councils Union-Wage Premia in the SA Labour Market, 2005. Dependent Variable: Log of Monthly Earnings y Union-wage premia very high by international Quantile: standards OLS Private Sector y Role of bargaining BC councils (and Member renewed power of Public public sector BC).

6 Sector BC not to be under- Member * * * * * *. estimated Union * * * * * *. Coefficient Trade Unions & Bargaining Councils 0 .05 .1 .15 .2 .25 .3 .35 .4 .45 .5 .55 .6 .65 .7 .75 .8 .85 .9 .95. Logwage percentile bc_pub bc_pub_mean union union_mean Labour Regulation as a Cost of Doing Business Hiring and Firing Rigidity y At the 65th p. for hiring rigidity 100. y And the 60th p. for 80. firing rigidity Index Value 60. y High ranking also for 40. UMI sample only 20. 0. 0 20 40 60 80 100. Percentile hiringrig hiringrigsa hoursrig hoursrigsa firingrig firingrigsa Labour Regulation as a Cost of Doing Business Hiring and Firing Costs &. Employment Regulation y Overall Employment Rigidity Index: 58th p. 500. y Driven though by high 400. levels of hiring and firing rigidity 300. Index Value y Source of Rigidity: 200. legislation on 100. dismissals; unfair labour practices;. 0. 0 20 40 60 80 100.

7 Percentile fixed-term contracts emplindx firingcosts emplindxsa firingcostssa etc. hiringcosts hiringcostssa The Labour Regulatory Environment: 3. Caveats y Above sub-indices measure legislative provisions, they do not measure the interpretation of this legislation by the relevant courts of law . y Institutional capabilities and efficiency: Entirely possible that neutral legislation could be rendered rigid, by virtue of a malfunctioning institutional infrastructure. y Nature of the industrial relations environment, specifically measured by the strength of employer and employee organisations can often shape the nature and extent of labour regulation, almost independent of the regulatory environment . Looking Ahead: Pro-Poor Growth? Annual per cap growth in expenditure Growth Incidence Curve for South Africa : 1995-2000. y Growth path in the 8. 1995-2000 period biased against the 6.

8 Poor 4. y State Transfers in post-2000 period 2. assist in spreading 0. 0 20 40 60 80. Poorest p% ranked by per cap expenditure 100 gains from growth Growth Incidence Curve Growth rate in mean Mean of growth rates Source:Statistics South Africa ,1995 and 2000 & own calculations Pro-Poor Growth and the Informal Economy Informal Employment : Share of Total Employment 60. 50. 40. 30. 20. 10. 0. B ots wana B raz il India P oland S outh Turkey Africa Unemployment in South Africa : Possible Solutions y Fix the Higher Education System to Focus on Narrowing Gap Between Supply & Demand y Improve Employment Placement (Information Asymmetries). y Labour Regulation and Regulatory Efficiency y A dual (youth/non-youth) labour market A Youth Cadet Service for the Public Sector y Picking Winners in the Schooling System