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The South African unemployment debate: three worlds, three discourses?

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Fourie, Frederick C.v.N. (2012). The South African unemployment debate: three worlds, three discourses?. Paper presented at 'Towards Carnegie III', University of Cape Town, 3-7 September 2012 (revised version of SALDRU Working Paper 63, June 2011). Department of Economics, University of the Free State.
Type conference paper
Scope Post-1994 South African economy
Method synthesis review
Period studied 1970–2010
Regions South Africa, KwaZulu-Natal, Cape Town
Themes inequality poverty unemployment, labour markets wages, methods data sources, education human capital, macro fiscal finance debt, transition post apartheid, comparative theory
Citation key fourie2012a

Argument

The paper is a critical meta-survey of about 200 South African academic papers on unemployment, mostly from the previous 10-15 years. It argues the literature clusters into three largely non-communicating discourses: labour market analysis, poverty/development (inequality and marginalisation), and macro/macro-sectoral. The clusters differ in questions, models, data, epistemology and ideology, so no coherent, encompassing diagnosis emerges. Fourie extracts a set of cross-cutting findings: segmentation and a weak informal-to-formal springboard, a wage elasticity of labour demand of about -0.7, an employment coefficient of about 0.5, the grants-labour supply nexus, the role of matric, and bidirectional causality between poverty and unemployment with hysteresis. He closes with an agenda for integrating the three perspectives.

Evidence and method

Secondary literature: roughly 200 journal articles and working papers. It draws on results from PSLSD 1993, OHS, LFS, QLFS, NiDS, KIDS and ACDIS survey analyses, Income Expenditure Survey decompositions, time-series studies, World Bank/IMF/OECD/UNDP reports and CDE statements. The paper itself offers no new data.

Findings

  • Unemployment research splits into largely non-communicating discourses; debate occurs within them, not between them. (p. 6)

    Debate occurs within the discourses, but not much between them. Three very different perspectives on unemployment prevail.

  • Kingdon and Knight find the formal-informal earnings ratio large, indicating segmentation. (p. 8)

    Kingdon and Knight find that the formal-informal earnings ratio is approximately 3.5:1. After controlling for different personal characteristics, the ratio still is approximately 1.75:1

  • The informal sector is a weak springboard to formal employment. (p. 15)

    Only 12% of those who are initially working in the informal sector make a transition to the formal sector within six months, 52% remain in informal employment

  • Income-source decomposition shows wage inequality dominates household inequality in 1995. (p. 18)

    Wage inequality makes a 67% contribution to the overall Gini coefficient of 0.59 in 1995.

  • Education reduces unemployment only from matric upward. (p. 17)

    the benefits of higher education in securing employment only ‘kick in’ when labour force participants have at least matric education

  • Unemployment shows hysteresis from 1983: the unemployment rate was not mean-reverting. (p. 27)

    In the second period the rate of unemployment displays a clear upward trend, defying the idea of a return to a stable long-run equilibrium rate of unemployment.

  • Employment in South Africa has historically responded to growth with an elasticity of about 0.5, so jobless growth is not a long-term feature. (p. 28)

    For the period 1946-2007 the value fluctuated around an average value of roughly 0.5.36 This means that economic growth leads to formal sector employment growth of only half the real GDP growth rate.

  • Long-run employment growth lagged working-age population growth since 1970, with labour shedding by mining and agriculture. (p. 26)

    For 1970-2005, total employment had an annualized growth rate of 1.3 percent per year while the working-age population grew at 2.7 percent per year.

  • Rodrik finds tradeable-sector employment (low-skill intensive) declined sharply, i.e. deindustrialisation. (p. 34)

    Employment in tradeable activities (mining, agriculture and manufacturing) has dropped from 45% to 30% of total formal employment from 1970 to 2004.

  • Pollin et al. document a sharp fall in labour intensity of formal production after 1994. (p. 37)

    In just seven years, formal economy businesses in South Africa were hiring nearly 30 percent fewer people for a given amount of goods and services they produced

  • Rodrik finds skill-adjusted wage push did not drive 1990s manufacturing job loss. (p. 33)

    The latter component, i.e. skill-adjusted real labour costs, actually fell significantly during the 1990s