Granular understanding of unemployment in South Africa can help pinpoint policies

The longest upswing in the South African economy in the last three decades was when it grew at an average rate of 4% per annum between 1998 and 2008. The 2008 global recession ended this 11-year growth period. The country hasn’t seen sustained periods of growth since.

Granular understanding of unemployment in South Africa can help pinpoint policies

Granular understanding of unemployment in South Africa can help pinpoint policies photo credit: canva

The longest upswing in the South African economy in the last three decades was when it grew at an average rate of 4% per annum between 1998 and 2008. The 2008 global recession ended this 11-year growth period. The country hasn’t seen sustained periods of growth since.

ALSO READ: South Africa needs to change direction on maternal health to solve child malnutrition

Throughout, the country has suffered from persistently high levels and rates of unemployment. In the final quarter of 2020 unemployment number rose to 7.23 million from 6.53 million and unemployment rate increased from 30.8% to an alarming 32.5%. This meant that one out of three jobseekers was unemployed.

Most economists agree this is due to a mismatch between the type of skills jobseekers bring to the labour market and skills demanded by employers. Hence it’s called structural.

What’s less clear is a granular understanding of who is out of work, when, and for what periods of time. Some people are rooted in unemployment for sustained periods, while others are only unemployed temporarily.

We set out to track this. In our paper, we used the first and only available national panel data, National Income Dynamics Study, to investigate the different groups of labour force participants, in particular examine the extent of short-term (transitory) and long-term (chronic) unemployed individuals.

Having identified these groups of individuals and examining their profiles, we suggest various labour market policy recommendations.

Unpacking the problem

The most used data source to study unemployment in South Africa is the Quarterly Labour Force Survey. But it doesn’t track individuals and their labour market status over time. To overcome this shortcoming, we used the National Income Dynamics Study to examine labour market outcomes of individuals over time. This was the first panel study done in post-apartheid South Africa. A total of 8,631 individuals, aged between 15 and 65 years, took part in all four waves or periods: 2008, 2010-2011, 2012 and 2014-2015.

In our study, we identify five groups of labour market participants:

  1. Chronic inactive: inactive across all four periods;
  2. Consistently employed: employed in all four periods,
  3. Chronic unemployed: unemployed in three to four periods,
  4. Transitory unemployed: unemployed in one to two periods,
  5. Other: individuals whose labour market status changed between inactive and employed, but were never unemployed in all four waves.

The first step was to identify who fitted the categories of chronically unemployed and transitory unemployed.

Our results showed that nearly 43% of individuals fell into the transitory unemployed category. This was closely followed by those who were consistently employed at 22.68%. The chronically unemployed – those without a job throughout the whole seven-year period, represented 4.33%.

Males accounted for 62% of the consistently employed group whereas the female share was more dominant (65%) in the chronic unemployed category. The consistently employed group was relatively older with a mean age of 44 years, and 70% were represented by individuals aged between 35 and 54 years.

On the other hand, 25 to 44 years olds were the most vulnerable to long-term unemployment. Nearly 60% of the chronic unemployed group were in this age group.

One key finding was that, for both the chronic unemployed and the transitory unemployed, most individuals did not complete matric. The consistently employed group was most educated, as nearly half (48%) had at least matric, and 9% had a bachelor’s degree.

For middle-aged people, those who were highly educated stood a good chance of being consistently employed. But those with low levels of education suffered long-term unemployment.

There are also some regional effects. For both the chronic unemployed and the transitory unemployed they were most likely to be female African residents who lived in the urban areas of the Gauteng, KwaZulu-Natal and Eastern Cape provinces.

The above findings clearly suggest that, instead of only focusing the overall characteristics of unemployed by using the Quarterly Labour Force Survey data, the National Income Dynamics Study panel data rather suggests there are two distinct group of unemployed, namely transitorily unemployed and long-term unemployed, and the transitorily unemployed is more predominant.

In addition, the presence of these two groups suggest how difficult it is for South African workers to enjoy long-term (if not permanent) employment.

Policy suggestions

Our policy suggestions relate to the areas of human capital development, enabling business environment, infrastructure and technological improvement.

First, the state should make sustained efforts to improve the quality of education. And the education system should better align labourers’ skills with the needs in the labour market. This will mean the qualifications of jobseekers are aligned. It should include workforce development and vocational training programmes.

Skills that jobseekers lack now include numeracy, literacy, communication, problem-solving, initiative-taking and even digital skills. Given the large portion of youth jobseekers in the transitory unemployed and chronic unemployed groups, mentorship programmes are needed with the coupling of classroom-based learning and practical experience. This not only makes the youth more employable, but also more likely to become self-employed.

The second policy tool is industrial policy, where greater emphasis should be placed on assisting the transitory unemployed find jobs. Industrial policy allows for labour-intensive employment, combined with hiring people with lower levels of education. This should be done in conjunction with further training of employees.

Manufacturing, in particular, is best placed to absorb unskilled or semi-skilled works. This is key given that the most people who experience long unemployment in these these two categories of workers (altogether they represent more than 70% of total employed). The establishment of the Tshwane automotive special economic zone is another promising recent initiative.

There is also a dire need for a more positive and proactive policy towards the informal sector. This includes creating a positive environment and investment climate in which small informal businesses can thrive.

Entrepreneurial involvement is low in South Africa compared to other African countries and should be prioritised from an early stage to create awareness on self-employment opportunities, especially among young people. Government investment in entrepreneurial programmes and workshops would go some way to filling this gap.

Lastly, the role of the private sector is key. In developing countries it provides nine out of ten jobs. But it faces obstacles. These range from institutional and financial facing small formal businesses to weak infrastructure like supply constraints in electricity, water and inefficiencies in transport logistics.

The outcome is low business confidence which causes private firms to struggle to survive. The creation of a more business friendly environment would ensure that the private sector could invest in research and development, design of educational and training programmes, use of smart technology to bridge and facilitate the current knowledge and skills gaps, and aid in the move towards the development and growth of the digital economy.

This would attract more investment and mitigate the chronic and transitory unemployment problem.

The Conversation

Derek Yu, Professor, Economics, University of the Western Cape and Christie Swanepoel, Senior lecturer, University of the Western Cape

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more articles here

%d bloggers like this: