High and growing rates of unemployment have been a source of great frustration to policy-makers. Although exports have been buoyant and the 1990s has been the first decade of sustained growth, unemployment has been rising by 2 percentage points each year. If the expanded definition is used, the rate of unemployment reached 41.8% in September 2002.
In a context where the majority of the unemployed are unskilled and the tradables sector has been shedding rather than absorbing unskilled labour, less orthodox avenues of employment creation require investigation. To that end, this paper examines the prospects for employment creation through meeting basic needs. While the latter is an imperative in its own right, because the industries that provide basic needs are non-tradable and have high employment multipliers, particularly of unskilled and semi-skilled labour, the expansion and re-orientation of government expenditure in this area unlocks opportunities for employment creation. The central contention of this paper is that industrial strategies for each of the basic needs sectors are required to realise their potential for employment creation. Three sectors are analysed from this perspective: construction and building, social services and food distribution. These sectors are aligned to existing government programmes where expenditure is projected to increase significantly over the next three years. This means that either through the direct provision or procurement of these goods and services, government has a powerful policy lever to influence the pace and pattern of employment creation in these sectors.
Ultimately, employment creation strategies that are aligned to industrial strategies and that fulfil government's obligation to meet basic needs are more sustainable than the short-term job creation strategies that dominate policy interventions at present. A preliminary analysis of the form that such industrial strategies could take in the construction, social services and food sectors is presented as the basis for a more comprehensive research agenda.
This paper looks at social mobility in the context of a growing economy. The nature and extent of Black affluence in South Africa provides an indicator of the impact of efforts to eradicate the remnants of apartheid-era racial discrimination in the South African education system and labour market. Most studies examining social mobility and inequality in South Africa have looked at the bottom of the income distribution, investigating changes in the severity and also the racial incidence of poverty. This paper explores the same topic by studying the top of the income distribution. Focusing on the Black members of this group of affluent, this paper hopes to make some contribution towards an improved understanding of social mobility and inequality in South Africa
Firstly, we attempt to identify the features that distinguish the Black upwardly mobile from those parts of the Black population seemingly trapped in poverty, starting with a descriptive analysis of the affluent. Using the 2000 LFS/IES and the 1995 OHS/IES, the study examines the profile of the richest 15% of household in South Africa. In the second section of the paper logit and multinomial logit models are used to consider the impact of spatial features, household characteristics and the age, education and occupation of the household head on affluence. We also investigate how affluence predictors vary between different race groups. The third and last section is devoted to exploring the spending patterns of the Black affluent.
The analysis here confirms many of the traditional views of social mobility. The paper finds a strong association between geography, demographic profile and social mobility that is robust across population groups. The empirical evidence cited is consistent with convex returns to education and a substantial role for quality of education.
Also, we find that the Black affluent exhibit distinctive spending patterns. Compared to the affluent from other population groups, the Black affluent spend more on appliances and furniture and less on personal computers, telecommunications and domestic workers. This may be due to their relatively new status among the affluent.
Policy makers in the public sector are often faced with requests for financial and other support of investment projects and incentive schemes. Frequently, such requests are accompanied by or require economic impact analyses of some sort. Economic impact assessment of investment projects can be undertaken at various levels. At one level, decision makers are interested in the financial viability of the investment project, in other words a comparison of income and expenditure. Taking a broader view, the challenge is to assess the impact of the proposed investment on the economy in which it takes place. Often, rather wild statement can be found in the media in which it is, for example, argued that one job is created for every 12 foreign visitors or so many Rands invested. Although such statements are appealing to the general public, decision makers need to go beyond these aggregate effects and extent the analysis to a more disaggregated level. For example, what will the effects be on the different economic industries? Will these jobs be created for highly skilled or unskilled labor?
The impact of an economic stimulus on specific institutions or industries can usefully be analysed with input-output analysis or social-accounting matrix (SAM) based models. These models use a database or snapshot picture of the economy, and then basically multiply the stimulus with the relevant institution's or industry's output multiplier. However, these analyses rely on strict assumptions, for example production technologies remain constant, which ignores any dynamic effects such as substitution between labor and capital, and a non-substitutability between different types of labor such as skilled and unskilled labor (Holub and Tappeiner 1989).
More specifically, in terms of employment it is often assumed that the average employment-output ratios of the relevant industry apply for all sectors that will indirectly receive a boost as a result of the production activities at hand. If substantial evidence exists of economies of scale and many economic observers have noted the recent phenomenon of jobless growth an alternative specification of the relationship between a change in output and the associated change in employment becomes critical.
Therefore, a time series regression analysis approach will be followed in analyzing the impact of output on labor demand or employment. Apart from generating employment output elasticities, so necessary for a more appropriate application of input-output or first generation SAM based modelling, with this approach it is possible to allow for phenomena such as input substitution and jobless growth, as well as other structural changes to be examined. The study is outlined as follows: the next section summarizes the economic determinants of labor demand. Section three explains the methodology followed in the study, while section four briefly described the econometric techniques used. Section five describes labor demand in South Africa, and section six presents the results of the empirical analysis. Section seven provides some conclusions.
This paper investigates the economic impact of globalisation on the Namibian labour market. It deals with how trade liberalisation, which is just one dimension of globalisation, impacts on the labour market, and therefore outlines possible indicators of the links between liberalisation and employment. The paper argues that the economic returns from greater openness are indisputable, but are perceived as having been unevenly distributed both between and within countries. For some groups, the rising flow of trade and capital has heightened the sense of vulnerability. Workers in industrialised countries fear being displaced by cheaper labour in developing countries. Developing countries think that the continuing globalisation, particularly of capital markets, will lead to greater volatility in their national economies, which will damage their growth performance. This is a fear that has been raised by the labour movement in Namibia and South Africa. Thus, globalisation is often associated with greater unemployment and social collapse. Without a doubt, globalisation impinges on development from several directions. Of greatest significance for national policy are: growth of trade, capital flows and financial capability, migration, information technology and the Internet, and the diffusion of technology. We argue that all parts of the world are affected by globalisation through these channels, but it is important to remember that the full force of change is felt by a relatively small number of upper and middle-income countries whereas most poor countries are left out. Most economies are only partially integrated into the global system and Namibia, as part of SACU, is no exception. Naturally, while this insulates closed economies to a degree from the risk of turbulence associated with volatile short-term capital flows it also prevents these countries from tapping the resources, energy and ideas inherent in globalisation. Africa in particular is relatively closed and thus lagging behind in terms of economic development. Using standard trade theory we theoretically and empirically (albeit with limited success) explore the effects of trade liberalisation on employment in Namibia. The paper notes that the Namibian economy specialises in capital-intensive sectors and that formal sector-wage inequality is rising, which begs the questions. Is trade the culprit? Finally, the paper advances some policy considerations; whilst at the same time acknowledging that analysing the impact of trade (globalisation) remains a difficult but important process.
This paper outlines the major emigration trends over the last twenty years. It argues that the two major causes of emigration have been real wage differentials and falling immigration restrictions in the major destination countries. The paper concludes by outlining some policy interventions that can be instituted to decrease emigration.
This paper contributes to the debate over the effect of trade on the demand for labour in the manufacturing sector in South Africa. Previous work in the area has decomposed employment to find the likely contribution of trade effects, has investigated the correlation between employment and trade, and has used fixed effects panel data models. This paper develops the earlier work, by estimating a labour demand equation using dynamic panel data method of Arellano and Bond (1991). This leads to results that are consistent with the findings of decomposition analysis that trade has had a positive effect on employment 1972-93, but that there has been a negative effect since 1993, the period of trade liberalisation. There is no evidence that the effects of trade are distributed unevenly between skills, when proxied by racial groups. Overall, the results show the importance of trying to model the dynamics of the processes at work and suggest that further work at the level of the company as well as the industry is likely to be important.
This paper uses two firm level surveys, the National Enterprise (NE) survey and the World Bank and Greater Johannesburg Metropolitan Council (GJMC) co-ordinated survey, to explore the implications of globalisation on employment in South Africa. We use the firm surveys to analyse the impact of trade liberalisation on the level and skill structure of employment. In the latter case we extend existing research in this area by focussing on the relationship between trade and choice of technology. We also analyse the impact of increased export orientation and foreign direct investment on employment. The results indicate substantial heterogeneity in the response of firms to trade liberalisation. On average large firms negatively affected by trade liberalisation reduced employment. No such relationship was found amongst small firms. Overall, however, the decline in employment due to trade liberalisation is likely to be small. Export competitiveness has improved through trade liberalisation, but this has not led to increased employment. Evidence of the impact of technological change on the skill structure of employment is also found. Increased use of computers, foreign investment and the importation of raw material inputs raise the skill intensity of production.
The South African government's objectives of job creation and poverty reduction depend on the success of policies that promote the employment of unskilled labour. Over the past decade, unskilled jobs in the formal sector have been lost, while the demand for skilled capital and labour has risen. In sectors that heavily employ less-educated workers, capital intensity has increased. Recent economic growth has mainly benefited sectors that rely more on relatively educated labour, and in these sectors capital intensity has not significantly increased. This paper explores how growth and job creation depend on private sector choices concerning how to produce, i.e. the relative proportions of capital and skilled or unskilled labour employed.
South Africa's rising capital intensity and increased demand for skilled labour are part of a global phenomenon. Cross-country analysis, however, suggests that South Africa's rising capital intensity is greater than what would be expected given international experience. An analysis of the capital-to-labour ratio by major sectors of the economy documents substantial heterogeneity in sectoral trends. The evidence is circumstantial, but it is consistent with the hypothesis that education-intensive sectors of the economy are not flowing with the economy's trend towards capital intensity. The two education-intensive sectors of the economy - financial services and trade - are growing more rapidly but without significant increases in capital intensity, and they are creating jobs. The sectors that are not education-intensive - namely mining, construction and manufacturing - are growing more slowly or contracting even as their capital intensity increases, and they are shedding jobs.
The paper develops a theoretical model that offers one possible explanation for this phenomenon. In the model, job creation depends on: the rate of capital investment; the nature of productivity growth; and the degree of substitutability of capital and labour. Rising investment rates are not sufficient to generate job creation. If productivity growth is labour- augmenting and labour cannot be readily substituted for capital, more investment can lead to job losses, even as the economy grows. A symptom of this is a rising capital-to-labour ratio.
The evidence discussed in this paper suggests a number of important policy implications. Given the preliminary nature of this research, the paper aims to illuminate issues on the table rather than to pose solid policy recommendations. Further research, particularly with more disaggregated sectoral data and micro-economic analysis, is required to derive robust policy conclusions.
The cost of capital in South Africa does not reflect the true cost to society of diverting resources to employing machinery and equipment. Enterprises lay off workers and replace them with automated machinery based on expected cost-benefit analysis that assesses the relative costs to the firm. The additional costs to society of increasing unemployment do not enter the calculation--yet they are substantial, in terms of social safety net costs (both public and private), as well as increased crime and social unrest. In this sense, policy that affects the relative prices of capital and labour is important. Yet, any policy mechanism is likely to succeed only in the medium to long term. Transitional policies are therefore important.
The final section of this paper examines policy options, which can be categorised into two groups. The first takes the trend towards skills- and capital-intensity as a given, addressing the consequences by stimulating growth to offset the unemployment impact or by strengthening social security. The second set of options focuses on reversing the trend through policies that affect relative prices, productivity or specific industrial interventions. Relative prices can be shifted through labour policy, tax reform, industrial subsidies, or monetary policy. The policy options are not mutually exclusive. For instance, social security can be strengthened in a manner that emulates wage subsidies, improving society's ability to cope with high unemployment while potentially addressing the underlying problem.
Since some of the causes of increased capital intensity are difficult to modify, there is a need for comprehensive social security reform that can cope with social dislocation while promoting job creation in a developmental manner. Other causal factors are amenable to policy intervention. The government's current and proposed industrial policies aim in part to address factor price distortions, skills shortages, and bottlenecks that stall labour-intensive small and medium enterprise promotion. This paper suggests that support for these policies, to the extent that they focus on increasing labour intensity, will yield returns not only in terms of economic growth, but also job creation.
Studies on the South African labour market have almost exclusively focused on the factors determining and shaping the current and future supply of labour in the country. This has, in the main, been driven by the availability of national data sets that have been limited essentially to household surveys produced by Statistics South Africa.
This has of course resulted in an extremely rich flow of useful and interesting results on the determinants of participation, employment and earnings in the South African labour market. However, the more integrated model of the labour market, would of course also need to examine the contribution of intra- and inter-firm dynamics in shaping the domestic labour market.
Until the very recent release of two firm surveys for the country, scant else was available to undertake such research. The purpose of this paper therefore is firstly to expose the reader to the labour market information embedded in the two surveys. Secondly, and perhaps more importantly, we will attempt to concentrate on those labour market issues that shed more light on firm-level skills development, skills acquisition and labour demand factors that are dictated by human capital attributes.
In essence, the paper will try and assess the contribution of firm-specific effects in shaping employment and earnings, together with providing a more coherent grasp of firms' activities and perceptions in relation to the recruitment, development and shortage of skilled personnel in their respective organisations.
This study is published by the World Bank in its informal series of Discussion Papers on the South African Economy. It draws on research supported by discussions and interaction with staff from a wide range of South African institutions.
Since 1994, South Africa has made undeniable progress across a number of critical areas. On the political front, democratic institutions are well established, and the 're-invention'Â of government that is continuing through the creation of new tiers of government (provincial and local) has changed the environment for governance and service delivery. On the economic front, the government has pursued policies that have restored and maintained macroeconomic stability in the context of a difficult global environment.
But despite these areas of success, there exists a widespread perception that South Africa's economic performance since 1994 has been disappointing. Real GDP growth has been erratic, formal sector job losses have continued unabated, and the key objectives of poverty reduction and improved service delivery remain largely unmet.
This study examines the pressing challenge of generating sustainable growth, job creation, and poverty reduction in South Africa. In doing so, it draws on a broad range of analysis and research on related topics undertaken by World Bank staff over the last few years, as well as work by other researchers in South Africa and elsewhere. The underlying message is that the challenge facing South Africa will not be solved by one (or more) 'quick fix' solutions, but instead demands concerted initiatives across a range of issues that reflect the underlying dependencies and 'interconnectedness'Â of the economy. We hope that this study (and its supporting materials) can contribute to the discussions and debate that will help South Africa move forward towards a better future.
From the standpoint of labor around the world the problem with globalization is not that it lowers market-determined wages and reduces employment - it is as likely to do the opposite, and which it does will vary from country to country. The more general problem is that labor depend on effective democratic states and trade unions to carry out policies of insurance, demand management, human resource development and redistribution; and the unimpeded movement of capital and goods may undermine their capacity do this and destroy the political coalitions which historically have pursued these objectives. But some of the more politically and economically successful examples of such policies -- for example Nordic social democracy and East Asian land reform-- have occurred in small open economies which would, on the above account, provide a prohibitive environment for egalitarian interventions. I seek to answer the following question: in a liberalized world economy, what programs to increase employment and real wages are implementable by democratic nation states acting independently? While in the absence of international coordination, globalization indeed makes it difficult for nation states to affect the relative (after tax) prices of mobile goods and factors of production and for this and other reasons may limit the effectiveness of some conventional strategies of redistribution, a large class of state and trade union interventions leading to substantial improvements in the wages, employment prospects, and economic security of workers is not ruled out by globalization. Included are redistributions of assets to workers in cases where the reassignment of property rights provides an efficient solution to incentive problems arising in principal agent relationships such as wage employment.
A narrow unemployment rate of 21.2% and a broad unemployment rate of 36% in 1997 in South Africa indicate a substantial number of working age people who did not work in the last seven days but would accept a job even though they were not actively searching for work. Under the narrow or strict unemployment definition these people would not be counted as part of the labour force. This definition assumes that individuals voluntarily choose to give up searching. In this paper, we consider non-searching unemployment as a degree of labour force participation or attachment that is lower than searching unemployment but higher than being out of the labour force, and try to identify determinants that render a person more likely to be in one of these labour market states. Individual, household, and community level characteristics are taken into account. We also estimate multinomial logit models for jobless African men and women. Using 1997 household survey data, descriptive and econometric analysis finds non-searching individuals to be particularly distinct from those out of the labour force and regional characteristics to play a major role in the experience of joblessness. In particular, high magisterial district unemployment rates appear to discourage active search and coincide with a high proportion of non-searching unemployed in former homeland areas. A final section of the paper discusses the implications of these findings for policy proposals surrounding the unemployment and social security debate in South Africa.
South Africa’s recent integration into the world economy provokes the question about its potential for building competitive advantage and prosperity at the local level in the context of an increasingly globalised economy. The experience of prospering localities in industrialised countries, in particular Western Europe and Japan, suggests that the small and medium-sized enterprise (SME) sector is at the forefront of local economic development. SMEs are reported to resolve the persistent problems of insufficient employment growth while being highly efficient in flexibly serving increasingly segmented consumer markets.
The small firm discussion has been taken up in South Africa, where small, medium and microenterprises (SMMEs) hold a numeric majority. SMMEs are expected to function as a driving force in South Africa’s both social and economic transition if supported by supply-side measures targeting enterprise constraints. Research on South African SMMEs reveals, however, a mismatch between the reality and the model of the SMME sector used by South African policy makers: The South African SMME sector is far from homogenous and would require a fine-tuned set of interventions rather than the generic assistance currently provided. Only the few, more dynamic SMMEs show a potential to contribute to rapid employment creation, while survivalist activities (as a result of ‘enforced self-employment’) constitute the vast majority of the South African SMMEs economy and grow in numbers, but not in size. Moreover, small business performance seemingly depends not only on the removal of constraints by means of (supportive) public policies and regulations, but decisively on industrial and organisational structures, the adaptiveness of firms and, above all, the capabilities and aspirations of the entrepreneur.
This paper aims to contribute to the South African SMME discussion by drawing together
findings from recent surveys on established manufacturing SMMEs in three South African regions. The descriptive findings on their turnover and employment growth trajectories confirm unambiguously that the present manufacturing SMME economy as a whole is no vehicle to tackle the problem of employment growth. This argument is developed in seven sections. Section two and three shed light on the international experience regarding SMMEs and employment growth. Section four turns to South Africa, its SMME policies and the debate about the role SMMEs are able to play. Theoretical and methodological considerations of section five form the background to section six, which contains the research findings on employment growth in manufacturing SMMEs in three regions. These findings are summarised and interpreted in the final section.
The paper utilises data from a survey of plastics firms and six firm case studies to examine the relationships between production and technology changes, and employment. The analysis examines associations between different factors influencing firms in making such changes and firm performance. These factors include trade liberalisation and the export performance of firms. The paper further explores the institutional relationships involved in technology changes, the sources of technologies which are introduced, and the nature of competition in which firms are engaged. In particular, the analysis distinguishes between defensive changes associated with cost minimisation and constructive changes associated with growth in employment and turnover. We find that it is important to consider the development of firm capabilities, and that these are based largely on the domestic market.
The growth of employment in the manufacturing sector has been an important issue in development economics for a long time. Employment growth is, of course, limited by output growth in this sector, but the elasticity of employment with respect to output has varied widely in different regions and economies. This paper focuses attention the idea that a major determinant of employment elasticity is the way the fruits of output growth are divided between employment growth and wage growth. The nature of the division in any economy depends on labor market institutions, and in particular the way the interests of the insiders' work out relative to the interest of the â€˜outsiders'. But before we are able to determine the quantitative dimension of the trade-off, we have to allow for two other factors which affect the size of the cake available to labor in real terms. These are: the elasticity of the wage bill with respect to output -which determines the trend in the share of labor; and secondly, the price effect, depending partly on the rate of inflation and partly on the movements of producer prices relative to consumer prices. A simple decomposition procedure has been outlined in the paper which allows us to quantify the relative importance of these factors, and hence give a clearer idea of the labor market outcome leaning to one or other of the two interests, employment growth and real wage growth. The empirical analysis for different regions of the world is carried out on time series data for the manufacturing sector collected by UNIDO from the national surveys of member countries for the decades of the seventies and the eighties.
It was found that, after allowing for the value of the of the wage bill elasticity and the price effect, East Asia shared its growth almost equally between real wage and employment increase. Study of the sub-regions of Asia revealed significant difference between S.E. Asia and China on the one hand, and South Asia on the other, particularly in the eighties. The latter had moved away in this period from the others to a labor market outcome which favored real wage growth much more than employment growth. In this respect South Asia approached the experience of EEC and Japan in both periods, and of the United States in the second. At the other extreme we have the experience of SSA which emphasized employment retention at the cost of real wage decline.
This paper develops a theoretical macro-economic model that links social infrastructure investment, taxation, and wages to income determination and job creation. The framework incorporates productivity effects, a fiscal budget constraint, and the public good nature of social infrastructure investment and wages, identifying a multiple equilibrium problem with the possibility of a low social infrastructure investment trap. Three major results follow from the analysis.
First, fiscal austerity (characterised by reduced social infrastructure investment, lower taxes, and a low fiscal deficit) may reduce long run national income and economic capacity if the economy is in a low social infrastructure investment trap. The conventional trade-off between equity and growth disappears, and increases in social infrastructure investment and a relaxed budget constraint may improve both national income and distribution.
Second, wages play an important role in characterising the low social infrastructure investment trap and providing the government with policy alternatives. A low wage trap reinforces the scarce social infrastructure investment equilibrium. In an economy with massive unemployment, wages can provide important externalities, particularly through remittances and social inclusion effects. Firms may have insufficient incentives to raise wages to the socially optimal level, and this reluctance is reinforced by low levels of labour productivity associated with the scarcity of social capital.
Third, the low social infrastructure investment trap is reinforced by technology characterised by rapidly diminishing returns to labour. The more inelastic is the substitutability of labour for capital, the more likely will labour productivity enhancements lead to job destruction rather than job creation. South Africa's unemployment problem exhibits many of the characteristics associated with the low social infrastructure investment trap. Policies that may address this problem include increased taxes and borrowing to finance expanded social infrastructure investment, higher wages for the working poor, and restructuring industrial policy towards more labour-intensive production. Labour-intensive production need not entail low wage activities-industrial policy that raises labour productivity while increasing the elasticity of substitution between capital and labour can increase labour intensity while improving wages. Appropriate social infrastructure investment strategies can support this industrial policy.
This paper examines the gender dimensions of the growth in informal and flexible work in South Africa and the government's policy response to this. The paper outlines the growth in informal and flexible work practices, and as illustrative examples, analyses how trade and industrial policies and labour market policies are impacting on the growth informal and flexible work. It is argued that the South African government's trade and industrial policies are shifting the economy onto a path of capital intensification. Allied to this, firms are undergoing a process of extensive restructuring. These developments are further promoting the growth of flexibilization and informalization, and thereby disadvantaging women. The paper demonstrates that whilst government offers a vast package of support measures to large business, its policy is largely irrelevant to the survivalist segment of small business, where most women in the informal economy are to be found. The picture for labour policy is more diverse. Aspects of the labour legislation are promoting the growth of a dual labour market, whilst there seems to be some tightening up of practices aimed at by-passing aspects of the protection provided to workers.
Six years into South Africa's fledgling democracy one is prompted to ask: what has been achieved, if anything? In this paper, I will attempt to provide some answers, if tentative, concerning economic mobility as it pertains to labour markets in KwaZulu-Natal using the KwaZulu Income Dynamics Study (KIDS) data. To do so I adopt both univariate and multivariate techniques. Univariate estimates of earnings mobility are presented under Markovian assumptions, first in the form of transition matrices and then in the form of first order autoregressive models. To shed light on other correlates of mobility, I then turn to an analysis of transitions between labour market states using a multinomial logit framework. Key findings are: (i) females experience a 61% increase in their transition probability from self-employment to being "out of the labour force"; (ii) race appears to be insignificant in predicting transitions out of unemployment and into employment, but is significant in predicting jobloss: in short, it would appear that being an African person has become unimportant for getting a new job, but is still important for losing one; (iii) belonging to a revolving credit association increases one's chances of finding a new job by 45%; (iv) years of experience (proxied for by age in years) is significant for finding a new job if you were unemployed in 1993, but for new entrants into the labour force, education replaces experience; and (v) an additional year of education is important for remaining employed and increases one's chances of moving up the earnings distribution by 5%.