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Job Creation and Destruction in South Africa

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Andrew Kerr; Martin Wittenberg; Jairo Arrow (2013). Job Creation and Destruction in South Africa. SALDRU Working Paper Series, Number 92. Southern Africa Labour and Development Research Unit, University of Cape Town.
Type working paper
Scope Post-1994 South African economy
Method descriptive quantitative
Period studied 2005–2011
Regions South Africa
Themes labour markets wages, inequality poverty unemployment, manufacturing industrial policy, methods data sources, business and state
Citation key kerr2013

Argument

The paper uses Statistics South Africa's Quarterly Employment Survey (QES) enterprise panel to give the first firm-level panel analysis of job creation and destruction in South Africa. Annual gross job reallocation of about 20% is comparable to OECD economies, so the data give little evidence that labour regulation freezes hiring and firing. Small firms destroy more jobs than they create, while the largest firms have the highest net job creation, and net creation is negative in manufacturing. The authors argue that, even allowing for undercounted firm births, the National Planning Commission's expectation that small and medium firms will drive employment growth is misplaced without policy or legislative change. The analysis follows Davis, Haltiwanger and Schuh's definitions, uses average firm size to avoid regression-to-the-mean bias, and imputes births retrospectively.

Evidence and method

Confidential Statistics South Africa QES enterprise-level panel, 28 quarters from 2005 to 2011, in three overlapping samples of roughly 15,000-18,000 enterprises. It covers registered private enterprises outside agriculture and mining, about 45-55% of private employment. Response codes and registration years are used to identify deaths and births. Comparisons are drawn with published results for the US, UK, OECD, Ghana, Ethiopia and the Ivory Coast.

Findings

  • Job creation and destruction each run at roughly 10% a year, with the destruction average slightly higher. (p. 15)

    Job creation rates are about 9.9 % on average across the waves, whilst the job destruction rates suggest that, on average, around 10.5% of existing jobs are destroyed in a 12 month interval.

  • Gross job reallocation is about 20% a year, comparable to OECD and US manufacturing figures. (p. 15)

    This means that, on average, 20% of jobs are either created or destroyed over the course of a year.

  • Enterprise deaths account for a large share of job destruction, more than in comparable UK or US studies. (p. 15)

    enterprise deaths contribute an average across all waves of 27% to total job destruction

  • Births contribute little to measured job creation, in part because of undercoverage. (p. 15)

    Births contribute around 11% to job creation in the QES.

  • The births undercount in the QES is severe. (p. 11)

  • Formal manufacturing employment declined over the sample period. (p. 17)

    between June 2006 and December 2011 there was a decline in formal manufacturing employment, as measured in the QES, of about 7%.

  • Employment is concentrated in large enterprises, while informal micro-enterprises are comparatively scarce. (p. 12)

    The QES data suggests that the median worker in South Africa works in an enterprise with 140 employees