Employment and Unemployment In South Africa - World Bank

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).

2 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. 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.

3 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 .

4 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%.

5 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.

6 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.

7 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. 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.

8 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).

9 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 &.

10 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. 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.