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Unemployment and the South African labour market . Hendrik van Broekhuizen Research on Socio-Economic Policy Stellenbosch University 12 September 2013. Concepts, figures, and statistics in this presentation: Primary sources. - PowerPoint PPT Presentation
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Unemployment and the South African labour market
Hendrik van BroekhuizenResearch on Socio-Economic Policy
Stellenbosch University12 September 2013
Concepts, figures, and statistics in this presentation: Primary sources
o CDE. (2011). A fresh look at unemployment: A conversation among experts. CDE Workshop Paper, Centre for Development and Enterprise
o StatsSA. (2013). Quarterly Labour Force Survey: Quarter 1 Press Statement. Statistics South Africa.
o CDE. (2013). Graduate unemployment in South Africa: A much exaggerated problem. CDE Insight. Johannesburg: Centre for Development and Enterprise.
o CDE. (forthcoming). South Africa’s education crises. CDE Insight. Johannesburg: Centre for Development and Enterprise.
o OECD. (2013). OECD Economic Surveys: South Africa 2013. OECD Publishing.
Why focus on unemployment?
o Unemployment and employment are measures of a country’s socio-economic health.
o Global employment crisis following financial crisis
o High and/or rising levels of unemployment are increasingly becoming • cause for concern• the target of policy interventions• The basis for political and ideological division
Figure – Peak-to-trough fall in output and employment (2007 – 2010)
Icelan
dTu
rkey
Finlan
dMexi
co
Denmark
Slovak
Repub
lic
German
y
Czech R
epub
licKo
rea Chile
Portu
gal
SOUTH
AFRICA
Austr
alia-15%
-10%
-5%
0%
5%
10%
15%
GDP ChangeEmployment Decline
Figure – Total employment in SA (2008 – 2013)
2008
Q120
08Q2
2008
Q320
08Q4
2009
Q120
09Q2
2009
Q320
09Q4
2010
Q120
10Q2
2010
Q320
10Q4
2011
Q120
11Q2
2011
Q320
11Q4
2012
Q120
12Q2
2012
Q320
12Q4
2013
Q1
12,20012,40012,60012,80013,00013,20013,40013,60013,80014,00014,200
1 000 000 jobs lost 646 000 jobs gained
Why focus on SA labour market?
o Engine of economic developmento Vehicle of socio-economic change
• For good or bad• Features and issues will propagate through
entire economy
The South African labour market
33 million Working-age Population
12.7 million
NEA
33 million Working-age Population
12.7 million
NEA
33 million Working-age Population
13.6 million Employed
12.7 million
NEA
33 million Working-age Population
13.6 million Employed
2.3 millionDiscouraged
work seekers
12.7 million
NEA
33 million Working-age Population
4.6 millionUnemploye
d
13.6 million Employed
2.3 millionDiscouraged
work seekers
Who are the unemployed?
65.3% long term
unemployed
HELP
49.1% females
70.7% between 15 -
34
59.4% have less than
matric
44% new entrants
The scale of SA’s unemployment crisis
Figure – Official and expanded unemployment rate (2008 – 2013)
2008
Q120
08Q2
2008
Q320
08Q4
2009
Q120
09Q2
2009
Q320
09Q4
2010
Q120
10Q2
2010
Q320
10Q4
2011
Q120
11Q2
2011
Q320
11Q4
2012
Q120
12Q2
2012
Q320
12Q4
2013
Q1
15%
20%
25%
30%
35%
40%
23.5%
25.2%28.2%
36.7%NarrowBroad
The scale of SA’s unemployment crisis I
o Official unemployment rate underestimates crises • Excludes discouraged work-seekers
o Employment rate may be more reflective
South Africa
Lower half of OECD countries
Chile
Israel
Slovenia
Estonia
India
Russia
Upper half of OECD countries
Indonesia
Brazil
China
0% 10% 20% 30% 40% 50% 60% 70% 80%
Figure - Employment rate in SA and select countries, 2008
Figure – Official LFP rate and ER (2008 – 2013)20
08Q1
2008
Q220
08Q3
2008
Q420
09Q1
2009
Q220
09Q3
2009
Q420
10Q1
2010
Q220
10Q3
2010
Q420
11Q1
2011
Q220
11Q3
2011
Q420
12Q1
2012
Q220
12Q3
2012
Q420
13Q1
15%20%25%30%35%40%45%50%55%60%65%
57.9%54.8%
44.3%41.0%
LFPER
The scale of SA’s unemployment crisis II
o Employment rate perhaps more reflective than official unemployment rate, but• Still includes underemployed• Even so, we are lagging behind
internationallyo To reach international norm of 60% ER
• requires 6 million more jobs than the current 13.6 million
o How do we create those jobs?
Economic growth and job creation
Employment and Growth I
o Economic growth necessary condition for job creation, but not sufficient
o Economic growth is not a sufficient condition for job creation
o Employment coefficient
Figure – GDP growth versus job creation, 1970s – 2000s
1970s 1980s 1990s 2000s-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
GDP Employment (public) Employment (private)
Employment and Growth II
o Why an employment coefficient of <0.4?• Decline related to many factors
− Economic, legislative, regulatory pressures− Drive industries and employers toward less
labour-intensive and more skill-intensive production
o To reach international norm of 60% ER requires• 33 mill + 7% GDP↑ for 15 years• 1.9%↑ in 33 mil + 7% GDP ↑ + >40 years
o Growth alone, even when rapid and sustained, cannot be a solution to unemployment
o How to increase labour intensity?
Drivers of economic growth in SA
o Driven primarily by unsustainable ↑ Government spending since 2000
o Local markets small = reliance on exportso Employment growth requires labour-intensive
exports and competitivenesso Detrimental factors
• High cost of doing business, cost of labour, exchange rate (volatility)
• High transport costs• Regulatory burden• No economies of scale
The role of labour market regulations
Employment, labour costs, and productivity
o Employment = f(Labour Productivity, Labour Cost)o Labour cost
• Wages and benefits (direct)• Training, other benefits, complying with regulatory
requirements (indirect)• Risk → increases potential labour cost
o ↑∑LC fewer job offers and jobs createdo ∆Employment = f(LP/LC)o Employers have two responses to high labour costs:
• Pass costs on to consumers• Employ fewer high-cost, low-productivity labourers
Figure – Average changes in productivity and real wages per decade, 1970 - 2009
1970s 1980s 1990s 2000s-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
Wages Productivity
Unions and collective bargaining
o Empirical evidence• Unionised workers’ wages 10% - 20% > non-
unionised• Firms covered by collective bargaining have
↑ wage rates ↓ employmento Only third of formal economy covered by
centralised bargaining• Sectors concerned among most critical• Provide benchmark for wage ↑ in other
sectorso Severs link between productivity and wages
The Costs of dismissal
o Cannot hire low-productivity cheaply, so don’t hire at all
o Exacerbated by non-wage costs and risks associated with employment.
o The more risky, the less likely to be employed• Young• Unskilled• Inexperienced
o Costly and risky to dismiss employees
The Costs of strikes
o Labour regulation in SA perhaps on par internationally
o Real crux is ‘militancy’ of SA trade unionso Raise the risk-adjusted wage and non-wage
costs of employmento Strike action heavier in public than private
sector (in general)• Knock-on effect i.t.o. services protests,
disruptions, and further strikes
Figure – Number of working days lost due to industrial action (2005 – 2012)
2005 2006 2007 2008 2009 2010 2011 20120
2,000,0004,000,0006,000,0008,000,000
10,000,00012,000,00014,000,00016,000,00018,000,00020,000,00022,000,000
Days lost Days lost (other sources)Average
The Costs of strikesStrike action in 2012 – scale of militancy
o 17.3 million working hours lost due to illegal or unprotected strikes
o 99 strikes of which half illegalo 118 200 workers involved, 100 850 in the
mining sectoro Strikes often accompanied by violence and
destruction of property
The Costs of strikesStrike action in 2013 – implications of militancy
o 3-week strike in automotive manufacturing sector• Gained:
−Wage increases >>>> inflation• Lost:
−45 000 vehicles, R20bn in potential revenue−GDP, tax receipts, workers pay, employment
numbers−Allure as FDI destination
o SA motor industry = 30% of industrial output and just under 5% of GDP.
o Strikes rob SA of business opportunities – i.e. employment opportunities
The role of labour market reform
o Little agreement on labour reforms between labour and industry
o Need to identify reforms that will stimulate establishment of labour-intensive enterprises.• More medium and low-productivity firms with
lower employment costso SA’s ‘missing middle’o Reforms are on the table, but…
Matching labour supply and demand
Social grants and LFP
o SA LFP rate low (54.8%)o Historically low among women and blackso Does social welfare incentivise or disincentivise
LFP?• Mixed empirical evidence in SA• Increase in access to social grants coincided
with increase in LFP rateso Increases in LFP not commensurately met by
increases in employment• Rising unemployment
Figure – Labour force participation rates in 25 countries (2008)
SwedenNew Zealand
U.K.Germany
JapanPortugalRussioa
Czech republicIndonesia
PolandItalyIndia
Turkey
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Figure – Social grants versus labour force participation rates (1996 - 2009)
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-10%
0%
10%
20%
30%
40%
50%
60%
0
2,500,000
5,000,000
7,500,000
10,000,000
12,500,000
15,000,000
Reservation wages
o Reservation wages and LFPo Mixed evidence for SAo However, long job queues suggest not…o Expanded Public works Programme and labour
brokering, e.g.o Most unemployed have never been offered a
job rather than turning down wage offerso Reservation wages likely to play more of a role
at the upper end (skilled labour)
Recruitment practices
o Job search affects unemployment and recruitment practices affect employment• Firms screen applicants based on productivity
signals• Firms wanting to fill low-skill entry-level jobs
may use other selection methods−Experience and in-house recruitment−Mitigates risk
• May not advertise jobs−Does not affect # jobs on offer, but makes
access to employment more exclusive
Figure – Share of working-age adults employed in informal sector
Indonesia Brazil India Chile SOUTH AFRICA
Russia0%
10%
20%
30%
40%
50%
Skills and unemployment
o Skills shortage and mismatch o SA has skill-biased employment growtho 59% of unemployed
• Have never worked• Have never had the opportunity to acquire
on-the-job skillso Lack of vital skills and aptitudes for
employment central to unemploymento Riskiness of labour market raises appeal of
experienced work-seekers
A vicious cycle?Abundance of inexperienced,
unskilled unemployed
Need low-wage, low-productivity
industries & jobs
Labour legislation & Economic
Policies
High productivity, high-wage industries
High costs of
dismissal
Firms prefer low-risk job applicants
Firms employ mostly
experienced, highly skilled
workers
Solving the unemployment crisis
o Short-run: ???????o Lon-run: more skillso Not just more education, but better education
• Focus must shift from quantity to quality• Employers look for productivity signals• Is education a good productivity signal in SA?
Developing skills
o FET colleges?o Artisanship training?o University?o Support for job-seekers?o Youth employment incentiveso Expanded public works?
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0123456789
10111213141516
Nar
row
Une
mpl
oym
ent r
ates
(%)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Year
DiplomatesTertiariesGraduates95% CI
Figure – Narrow unemployment rate for tertiaries
Figure – Graduate Narrow Unemployment Rate (2008 – 2013)
0
1
2
3
4
5
6
7
8
Nar
row
Une
mpl
oym
ent R
ate
(%)
2008
2009
2010
2011
2012
2013
Year
Narrow Unemployment Rate 95% CI
Estimated slope coefficient for linear trend line: 0.11 (0.02)
Thank you