South Africa's employment crisis: prognosis and possibilities

Literature › Works

Nicoli Nattrass (2009). South Africa's employment crisis: prognosis and possibilities. Five Million Jobs Initiative, Working Paper No 2 (CDE / Business Leadership South Africa). Centre for Development and Enterprise and Business Leadership South Africa.

Type	working paper
Scope	Post-1994 South African economy
Method	policy analysis
Period studied	1985–2009
Regions	South Africa
Themes	transition post apartheid, inequality poverty unemployment, labour markets wages, macro fiscal finance debt, manufacturing industrial policy, unions strikes, mining migrant labour, business and state
Citation key	nattrass2009

Argument

Nattrass argues that post-apartheid South Africa failed to cut unemployment because of a political compromise: organised labour's agenda was implemented in labour-market regulation, capital was mollified with orthodox macro policy, and the ANC governed top-down. Labour legislation, industry-level wage bargaining, trade liberalisation, fiscal restraint and a scattered industrial policy together pushed firms to shed unskilled labour and substitute capital for it. Reaching full employment through growth alone is implausible, and the 2008-09 global recession makes it worse. She proposes a 'co-ordinated' wage-restraint and jobs partnership, citing the 1991-93 gold-mining profit-sharing agreements as a precedent. Without such a partnership she expects a growing informal sector and a heavy welfare burden.

Evidence and method

Secondary literature (Rodrik, Hausmann, Banerjee et al, Kaplan, OECD, Spence Commission), South African Reserve Bank and Treasury data, Quarterly Labour Force Survey figures, policy documents (GEAR, ASGISA), press statements by Manuel, Vavi and others, a union interview from the South African Labour Bulletin, and personal communication with NUM officials and Treasury and Harvard Group insiders.

Findings

• Growth in the decade before 1994 was weak, with investment drying up and capital leaving the country. (p. 1)

  Growth had been weak and erratic (figure 1), averaging 0,8 per cent over the previous decade, investment had all but dried up, and capital was steadily draining out of the economy.

• The government deficit rose sharply during the transition, limiting the scope for expansionary policy. (p. 4)

  the sharp increase in the government deficit (from 1,5 per cent of GDP in 1990 to 7,3 per cent in 1993) that took place during the transitional period

• Manufacturing wages rose largely because unskilled low-wage jobs were shed, so the gains went to retained and skilled workers and employers. (p. 5)

  for the most part, average real wages rose in manufacturing because unskilled low-wage jobs were shed.

• Regulation and wage bargaining gave firms incentives to substitute machinery for workers. (p. 6)

  all of which provided strong incentives for firms to substitute machinery for workers, and to have a smaller, better-skilled, better-paid and more manageable workforce

• Even if the 2001-06 growth path continued, more than half of working-age adults would still be without work by 2015. (p. 8)

  then by 2015 more than half of the country's working-aged adults would still be without work.

• Gold mining was in crisis in the late 1980s and early 1990s, with profits and employment falling sharply. (p. 16)

  profit per ton of ore milled dropped by 80 per cent between 1985 and 1992. Workers were hurt too, as employment fell by 23 per cent

• The NUM chose profit-sharing agreements in 1992-93, which tied wages to profitability while protecting employment. (p. 16)

  By tying wage increases to profitability, workers were able to ensure that their wages rose as fast as possible – and with a minimal impact on employment.

• The profit-sharing episode shows that militant unions can recognise trade-offs among wages, employment and profitability. (p. 16)

  it demonstrates that even South Africa's most militant trade unions are capable of concluding agreements which recognise the trade-offs among wages, employment, and profitability.

• Informal employment is large and the welfare system carries a heavy burden. (p. 17)

  Of South Africa's 13,7 million employed, 4,7 million are informal.

• Trade liberalisation was sharp: manufacturing tariffs fell substantially between 1994 and 2004. (p. 19)

  Tariffs in manufacturing were reduced sharply, from 23 per cent in 1994 to 8,6 per cent in 2004