Annual Forum Papers

In household surveys, earnings data typically can be reported as point values, in brackets or as 'missing'. In this paper we consider South African household survey data that contain these three sets of responses. In particular, we examine whether there are systematic differences between the sample of the employed with earnings reported as point values and those with earnings responses in brackets; we compare five different methods of reconciling bracket and point responses so as to generate descriptive measures of earnings; and we investigate empirically how earnings measures differ by approach.

  • Year 2005
  • Publication Author(s) Dorrit Posel and Daniela Casale
  • Countries and Regions South Africa
Wednesday, 01 December 2004

Productivity in SA: Friend or Fiend?

Today in South Africa we are witnessing changes that are remaking the country. These changes are in the social, economic and political spheres. Under its democratic government, South Africa committed itself to the principles of free-market economy nearly a decade ago. Yet, these commitments have not borne their expected fruits. This paper analyses one aspect of this experience, the link (or lack there of) between productivity, economic growth, and employment in South Africa. It begins with a review of the expected theoretical relationship between these variables. Evidence of South Africa's productivity, economic growth, and employment experience since 1994 then follows. In evaluating these areas, nuances that emerge because of alternative definitions are sought and placed within a comparative context. The final section focuses on South Africa's jobless growth experience and formulates policy recommendations to make this relationship more favourable. First, some parallel international experiences and theoretical insights are reviewed for policy guidance. Policy recommendations to alleviate potentially problematic areas in the relationship between productivity and employment in South Africa then follow. Finally, policy recommendations are made over action that can be undertaken to enhance positive aspects of the relationship between productivity and employment in South Africa.

  • Year 2004
  • Publication Author(s) Christopher D. Mlosy; Thomas E. Pogue
  • Countries and Regions South Africa

Business process outsourcing and offshoring (BPO&O) is a major global trend, with a significant positive impact in developing countries that have the required skills, cost advantage and infrastructure. Over the next 4-5 years, a window of opportunity exists for South Africa to realize significant value by developing this sector. South Africa has a good starting position with a large and growing domestic BPO market, and strong capabilities in the highest growth sectors (e.g., financial services and insurance) to exploit the international opportunity. Early estimates suggest that a concerted effort could create between 65 000 and 100 000 jobs (15000-25000 direct, 45000- 75000 indirect), attract between $90-175m in cumulative foreign direct investment up to 2008 (in real terms), and result in a GDP contribution of between 0.3-0.5%.

However, to date South Africa has not been able to attract large BPO&O projects, and initiatives aimed at attracting European and US multinationals have been fragmented and largely unsuccessful. This is in marked contrast to the rapid development of the BPO&O industry and the experience of successful players such as India and Philippines, who have rapidly growing business process outsourcing industries, significantly stimulating growth and employment. For example, India is forecasting the creation of approximately 1 million direct jobs from this sector by 2008.

Please Note: The views expressed in this paper represent those of the author, and not necessarily those of The Presidency or ComMark.

  • Year 2004
  • Organisation TIPS
  • Publication Author(s) Kirsten Kennedy

Capital flight is a serious problem for South Africa, which if not addressed will continue to impede its ability to deal with structural issues such as high unemployment and concentration of wealth. This paper presents an estimate of the wealth that left South Africa in the form of capital flight during the period 1980 to 2000. We find that from 1980 to 2000 average capital flight as a percentage of GDP was 6.6 percent a year. In this paper, we deviate from the existing literature on capital flight from South Africa by suggesting that the motivation of people involved in capital flight before and after the fall of apartheid may have changed. We find that capital flight as a percentage of GDP was higher after the democratic elections in 1994, even though, there was much more political and economic instability during the period investigated before the democratic elections. The increase in capital flight as a percentage of GDP may reflect the discomfort of those involved in capital flight in the post-apartheid democratic process. We also consider how international capital flows and structural weaknesses in the economy have influenced capital flight.

  • Year 2004
  • Publication Author(s) Seeraj Mohammed; Kade Finnoff
  • Countries and Regions South Africa

Recent studies using South African household survey data have questioned the exogeneity of household size and composition from income flows and labour market outcomes. (Maitra and Ray, 2001, and Klasen and Woolard, 2000). Research on unemployment in South Africa has occasionally viewed the household as either an important source of labour market information, as providing incentives or disincentives to participate, and its composition at a point in time as outcome of members' labour market possibilities. It has been proposed that household structure and a household's location in South Africa has a major impact on an individual's decision to participate in the labour market and their success in looking for work. In the absence of long-term unemployment insurance in South Africa, jobless people have been found to live in households where they can share in wage income or other income, i.e. make use of a private safety net (Klasen and Woolard, 2000). The relatively large state old age pension may further have led to larger pensioner-headed households and larger households when a pensioner is present (Case and Deaton, 1998; Edmonds, Mammen and Miller, 2002). The above-mentioned studies employ household survey data collected in 1993 and 1998, and the Census 1996 but neither use more recent datasets nor compare trends across them.

  • Year 2004
  • Publication Author(s) Farah Pirouz
  • Countries and Regions South Africa

This paper provides a broad overview of the labor force activity of older workers in South Africa. We begin the paper with a discussion of important features of the social and economic environment that provide a background for the analysis. Drawing on excellent microdata, we then analyze the age profile of participation, focusing in particular on the possible effects of the old age pension on retirement. We look at several important variables that may affect the economic activity of the elderly, including marital status, living arrangements, the pension system, education, and geography. We estimate probit regressions in order to look at key determinants of labor force activity.

  • Year 2004
  • Publication Author(s) David Lam; Murray Leibbrandt; Vimal Ranchhod
  • Countries and Regions South Africa

This paper re-examines the effect of the South African social pension on the labour supply of working-age adults using data from 1993. We take account of the fact that households may include non-resident members, and therefore that the pension may play a role in facilitating migration to work or look for work. We find that rural African women are significantly more likely to be migrant workers when they are members of a household in receipt of a pension, and that it is female pension income that drives this result. We explore a number of possible reasons why pension income might have this effect.

  • Year 2004
  • Publication Author(s) Dorrit Posel; James Fairburn; Frances Lund
  • Countries and Regions South Africa

In this paper we investigate labour market trends in South Africa between October 1995 and March 2003. In particular, we evaluate the South African government's claim that over this period, the economy created two million net new jobs. Using the same household survey data as that used to generate official employment estimates, we also find an almost two million net increase in employment. However, we show that this increase is likely to have been inflated by changes in data capture and definitions of employment over the years, and that the real increase may be considerably less, with a lower bound of approximately 1.4 million jobs. We argue further that the rise in employment over the period must be evaluated in the context of a dramatically larger growth in labour supply and therefore rising rates of unemployment, declining real earnings, and an increase in the number of the working poor, particularly among Africans.

  • Year 2004
  • Publication Author(s) Daniela Casale; Colette Muller; Dorrit Posel
  • Countries and Regions South Africa

Since 1994, the South African economy has undergone significant changes with the government implementing various policies aimed at redressing the injustices of the past, fleshing out the welfare system and improving competitiveness as South Africa becomes increasingly integrated into the global economy. These policies have, directly or indirectly, impacted on the labour market and, consequently, on the lives of millions of South Africans.This paper's chief objective is the analysis of some of the changes in the South African labour market in the post-apartheid era. The period, between 1995 and 2002, began with much promise and many challenges as the economy liberalised and normal trade relations were resumed with the rest of the world.Soon after the African National Congress came into power, the macro-economic strategy named 'Growth, Employment and Redistribution'(or GEAR) was unveiled in 1996. This strategy predicted, amongst other things, employment growth averaging 270 000 jobs per annum from 1996 to 2000, with the number of new jobs created rising over time from 126 000 in 1996 to 409 000 in 2000 (GEAR 1996).Unfortunately, for a variety of reasons, these projections were not realised. In fact, in terms of the labour market,the experience of the second half of the 1990s appears to have fallen short of even the baseline scenario contained in the GEAR document, which projected a net increase in (non-agricultural formal)employment of slightly more than 100 000 jobs per annum.

  • Year 2004
  • Publication Author(s) Morne Oosthuizen; Haroon Bhorat
  • Countries and Regions South Africa
Tuesday, 15 June 2004

Youth Labour Markets in Africa

This paper makes use of a review of the literature on African labour markets, the international literature on youth and the labour market and a fifteen country African data set to analyze the current situation of youth in sub-Saharan labour markets.

  • Year 2004
  • Publication Author(s) Cecil Mlatshni; Murray Leibbrandt
  • Countries and Regions Southern African Development Community (SADC)

There is significant consensus that unemployment and more generally, exclusion from the labour market,is the central socio-economic problem in South Africa. Joblessness is strongly implicated in such socio-economic problems as crime, poverty, alcoholism, HIV-AIDS, and even poor educational outcomes and low skill levels (see for example Bhorat etal.2001; Fryer and Vencatachellum, 2004; Nattrass, 2003).The literature flowing from household survey data has however tended to confine itself to measuring unemployment and its consequences. In doing this, it tends to treat unemployment as something that happens to individuals and communities. However, factors such as unemployment and poverty will have obvious feedback effects on the current capabilities of individuals, on the intergenerational transmission of capital (and especially human capital) and on social and market structure. Below critical threshold levels, such factors can generate market and coordination failures. The distortions generated by unemployment can become endogenized in the sense that they become part of the cause of unemployment. To date, there is no clear understanding in the South African literature as to whether such endogenous factors are important and how they interact with other factors such as so-called imposed distortions (caused, for example by labour legislation and union wage premia) and other macroeconomic causes of unemployment.Section 2 sets out the theoretical case in slightly more detail.

  • Year 2004
  • Publication Author(s) David Fryer
  • Countries and Regions South Africa

In September of 2002 South Africa's roughly one million domestic workers - about 840,000 predominantly African and Coloured women who work as housekeepers, cooks and nannies, and another 180,000 men who work primarily as gardeners - were granted formal labor market protection, including the right to a written contract with their employers, the right to paid leave, to severance pay, and to notice prior to dismissal (Department of Labour, 2002). Employers were also required to register their domestic workers with the Unemployment Insurance Fund (UIF) and to withhold UIF contributions from their paychecks; (since April of 2003 domestic workers have been entitled to unemployment benefits). In November of 2002, a schedule of minimum wages, including time-and-a-half provisions for overtime work, went into effect. The minima were set above the median hourly wages that prevailed at the time, making this a significant intervention in the domestic worker labor market. This paper attempts to determine if these regulations have had any effect on wages, employment levels, hours of work, and the conditions of employment. I find that the regulations do appear to have raised wages: Average nominal hourly wages for domestic workers in September of 2003 were 23% higher than they had been in September 2002, while for demographically similar workers in other occupations the nominal wage increase was less than 5%. Econometric evidence supports the conclusion that the wage increases were caused by the regulations, since the largest increases are seen in places where the greatest number of workers were initially below the minimum wage.

  • Year 2004
  • Publication Author(s) Tom Hertz
  • Countries and Regions South Africa

There are two major economic and social security challenges facing South Africa: addressing large-scale unemployment and the AIDS pandemic. As of 2003, an estimated 14% of all South Africans were HIV-positive, with over a thousand people dying each day of AIDS. According to the government household and labour-force surveys conducted from the mid-1990s onwards, about a third of the labour force is without work (Nattrass, 2000a). This amounts to about 4.7 million people and it is, without question, a socio-economic crisis of major proportions. The life-chances and living-standards of entire households are compromised when working-age adults cannot find employment (Seekings, 2003b). Households burdened by AIDS are in an especially difficult position (Desmond et al 2000, Steinberg et al 2002a, 2002b; Booysen, 2002; Booysen et al, 2002).

Addressing AIDS and unemployment poses major challenges for social solidarity in South Africa. Over the past decade, the labour-market and industrial-policy environment has benefited relatively high-productivity firms and sectors (Nattrass, 2001). Business thus had strong incentives to reduce dependence on unskilled labour, and once the price of highly active antiretroviral therapy (HAART) started to fall from 2001 onwards, to supply it, either directly or indirectly through medical aids, to their increasingly skilled workforce (Nattrass, 2003). Those without jobs had neither access to earned income nor life-prolonging medication.

In August 2003, the government signalled its in-principle support for the provision of HAART in the public sector. Many unemployed people with AIDS will thus be able to access treatment, although this will depend on the scale and pace of the roll-out. A full-scale treatment intervention which reaches all who need it is feasible, but will require a substantial commitment of resources (Geffen et al, 2003). If resources are not to be directed from other priorities, the cost burden will fall on income-earners in the form of higher taxation. Given South Africa's high levels of unemployment, this means that the burden of providing treatment for all will fall on a relatively small pool of income-earners.

Under these conditions, employers and workers may calculate that they stand to benefit more from a more limited (and less expensive in terms of increased taxation) public sector treatment intervention, than a programme providing universal access. Two out of the three leading South African macroeconomic models predict that the pandemic will increase per capita income because the impact will be greater on the population than on growth (Nattrass, 2003). If the AIDS pandemic is perceived as being likely to result in an increase in per capita income, then the elite may regard it as in their best interests to do very little significant to halt the epidemic or alleviate its consequences. Those with the economic means to better protect themselves and their families against HIV infection (by providing access to education, condoms, healthy diets and safer life-style choices), and who have access to medical schemes to treat themselves and their loved ones if they become infected, may think their interests are better served by a 'do-very-little' scenario. They may privately calculate that they stand to benefit more as individuals from a set of policies which prioritises economic growth and minimises taxation, than they would from a social response that includes universal access to HAART and entails higher taxation and spending cuts in other areas. They would, of course, be wrong to think that they can entirely insulate themselves in this way from the AIDS pandemic. But if they believe they can, this course of action may seem preferable.

This has implications for social solidarity regarding AIDS treatment. For example, organised labour may well baulk at the tax implications of a full-scale tax-financed AIDS intervention. Many workers are already able to access HAART through their employers or medical aids and most live in urban areas (which are at the front of the queue in the treatment roll-out because the greatest capacity to deliver treatment is in the large urban hospitals). Employed workers may thus have an incentive to support a limited roll-out (with correspondingly less onerous tax implications for their pay packets) rather than a large-scale intervention aimed at reaching all those who need it.

The structural problem at the root of all this is South Africa's high unemployment rate - especially among the less skilled. Section 1 places South Africa in a comparative perspective and summarises the historical roots of the unemployment crisis. Section 2 discusses various ways of addressing the unemployment problem in the light of the AIDS pandemic, and Section 3 considers the question of how to combat AIDS and unemployment/poverty through a social accord process.

  • Year 2003
  • Publication Author(s) Nicoli Nattrass

Only a handful of sectors have shown an increase in their demand for labour, amongst others, Leather Products, Plastic Products, Wood and Wood Products, Wholesale and Retail Trade, Printing and Publishing, Medical Services, Basic Chemicals and Other Chemicals and Television and Communications Equipment producers (Table 17). In terms of labour demand, these industries are also relatively new on the scene, judging from the positions they held during the 1991-1996 period. However, with the exception of the Wholesale and Retail Trade sector, none of these industries have a large weight in the total demand for labour, as can be attested by the second last column of the table. On the contrary, labour shedding has been the trend in the relatively large sectors such as Gold Mining, Agriculture, and General Government, and this has obliterated whatever little gains in labour demand that have been recorded anywhere.

  • Year 2003
  • Organisation TIPS
  • Publication Author(s) Donald Onyango
  • Countries and Regions South Africa

South Africa simultaneously lost more than 890,000 jobs and increased the number of skilled workers from 1989 to 1999. We argue this is the consequence of well-documented acute apartheidera distortions which led to a current coordination failure where (i) firms are locked into a mostly skill-intensive technology where they have very little demand for semi-skilled and unskilled labor, and (ii) there are too few semiskilled and skilled blacks. It follows that the average level of blacks' human capital is too low for firms to adopt a technology which makes intensive use of less skilled workers in the production process. A rm cannot unilaterally change technology because current skilled (mostly white) workers would lose and move to other firms. All this points to a missing market for semi-skilled workers. Wealth redistribution, public investments in both the quantityand quality of education are shown to be Pareto-improving.

  • Year 2003
  • Publication Author(s) David Fryer; Desire Vencatachellum
  • Countries and Regions South Africa

The province of KwaZulu-Natal (henceforth KZN) is an important contributor to overall national economic performance in South Africa. In 1996, data from the Census of Manufacturing emphasised that KZN ranked second after Gauteng across a series of economic indicators (see for instance Annex Table 1 - part 1, p. 86). Although it is difficult to establish with accuracy how this position has evolved since 1996, WEFA estimates allows one to build on previous information from the 1996 Census of Manufacturing. WEFA data suggests that KZN manufacturing activities have grown but potentially not as rapidly as other South African provinces and thus that the rate of manufacturing expansion might be below the country average (see also Statistics South Africa, 2002, Figure 3, p. 2). Presently, KZN contributes to about 15.5% of South Africa's gross domestic product and, within KZN industries, manufacturing represents 23% of the Province own gross domestic product at market prices (see Annex Table 1 - parts 1 and 2, p. 86). Figure 1 below shows the distribution of South Africa's manufacturing gross domestic product across provinces; manufacturing in KZN contributes 22% of South Africa's manufacturing gross domestic product against 39% for Gauteng.

  • Year 2003
  • Publication Author(s) Richard Devey; Imraan Valodia; Bala Rajaratnam; Myriam Velia
  • Countries and Regions South Africa

The aim of this paper is to investigate the empirical relationship between productivity, real wages and unemployment in South Africa using appropriate time series econometric techniques. The value of this approach is that it imposes no a priori theoretical assumptions on the relations between the variables, but rather allows the data to 'speak for themselves'. The results may then be used in one of two ways. Either they allow one to interrogate the validity of the data by comparing the results with well-established labour market models, or - assuming the data is deemed reliable - they can be used to provide evidence for or against labour market theories. This seems however to land one in a 'catch 22' situation, and inevitably the economist has to make an informed assumption about which more is reliable: the data, the theoretical models, or neither. In the present case, the real wage and productivity data are regarded as fairly reliable, but the unemployment series is rather makeshift in the absence of accurate annual data over a long period of time. The long run upward trend in unemployment does however seem plausible.

  • Year 2003
  • Publication Author(s) Jeremy Wakeford
  • Countries and Regions South Africa

From a policy perspective, employment depends on both economic growth and the labour absorption capacity of the economy. Policy must target both of these. Higher growth rates can be achieved through productivity improvements (technology, industry restructuring, improved know-how, etc.) and/or growth in domestic or foreign market demand. Higher growth rates are difficult to achieve, and do not in themselves guarantee labour absorption as we have seen in recent years. This is partly because South African growth has been more reliant on intensive, rather than extensive growth. Moreover, in a distorted market, particularly in the context of the apartheid legacy, extracting more employment per unit of investment and output requires forceful stimulation and market reforms. This paper outlines the experience of employment and unemployment over the past 10 years. It explores thinking about whether SA is on a sustainable job-creating growth path. It reviews whether the trends would support a basic definition of jobless or job creating growth. But the definition of employment is very broad and so the paper then looks at some underlying trends in the quality of work: this helps us to understand whether the employment created contributes to a sustainable dynamic path. The paper concludes with some thoughts about policy implications and policy balance.

  • Year 2003
  • Publication Author(s) Miriam Altman
  • Countries and Regions South Africa
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