Displaying items by tag: Public Employment Programmes

The unemployment rate among semi- and unskilled workers in South Africa is over 50%. This high rate can be attributed to various factors, including political decisions of the past, educational inequalities, and poor economic growth. These factors have contributed to the structural unemployment problem in South Africa. The real cost of labour and in particular that of semi- and unskilled workers has also increased dramatically. This could be a further incentive for firms to hire fewer semi- and unskilled workers.

Investment in human capital is imperative, as this will increase the income earning potential through higher skilled employment. However, in the short run this may not be enough. A wage subsidy has been proposed as a further incentive for firms to employ more semi- and unskilled workers. This type of subsidy lowers the cost of employment to the firm while maintaining the wage of the worker. It is a tool that is equally useful in reducing unemployment and improving the distribution of income, particularly when semi- and unskilled workers are targeted.

The outcome of various wage subsidy experiments are analysed using a CGE model. This class of multisector model is useful for evaluating the impact of policy tools that can have economy-wide effects. The simulations suggest that employment can be raised quite significantly, with important benefits especially for poor households.

The cost of employment subsidies can be substantial, depending on the extent of the target group. However, it is argued that the benefit of increased employment justifies the cost. It is shown that although the negative indirect effects of raising funds for the scheme, either via an increased budget deficit or increased taxation, counteract the positive impact of an employment subsidy scheme, the net overall benefits are positive. All modelled household groups increase their income, while all industries are able to employ more workers than before.

Poverty is multi- faceted and can be manifested in hunger, unemployment, exploitation and lack of access to clean water, sanitation, health-care and education. Poverty is not confined to any one racial group in South Africa, but it is concentrated amongst Blacks, particularly Africans. There is a need to monitor poverty and the poverty alleviation programmes (PAPs) that are in place, to see that the needs of the poor are addressed with the urgency the situation demands and to take corrective actions where mistakes have previously occurred.

Some of the policies of the past, such as segregation and discrimination, left a legacy of poverty and inequality. Up to the early 1990s the apartheid system of the government had PAPs that were biased towards providing health, education and housing services to the White minority to the detriment of the Black majority of the South African population.

The post-apartheid government's agenda is to address poverty and redress inequality amongst all societies. Through its poverty policy framework, the Reconstruction and Development Programme and its macro-economic prescriptions of Growth, Employment and Redistribution policy, the government has implemented new PAPs and extended some of the past programmes to address poverty. It is essential to evaluate these existing and past PAPs to see if they are reducing the poverty gap. This paper would review past PAPs and how effective they were in alleviating poverty and compare this to existing and even the proposed programmes to see if they are reducing poverty. In doing so, the paper will be highlighting the successes and failures of these programmes with a view of coming up with recommendations on how to effectively implement such programmes in future and to avoid repeating the mistakes that occurred previously.

The South African economy is unable to deliver employment for a growing number of would-be workers, especially among the unskilled. There is a need for state intervention to address this failure, and public works have been identified in the national policy discourse as a central policy response, to address both the problem of unemployment, and also a range of social development and economic objectives. This paper offers a critical review of the evidence base available to policy makers on public works, and an assessment of the performance of public works in South Africa since 1996, in response to the question of whether public works can offer a significant response to the South African employment crisis.

With the data currently available it is not possible to show that the anticipated broader benefits of public works programmes in terms of increased livelihoods, reduced poverty, the creation of sustainable employment, community empowerment, local multipliers, or growth as outlined in the policy rhetoric, have been achieved. It is only possible to assess performance in terms of the scale of employment created. By this criterion, success has been limited. The Community Based Public Works Programme, the major national employment creation instrument, created between 13,000 and 33,000 jobs per annum between 1996 and 2001, representing an estimated 1.5 million to 4.5 million workdays per annum, or 0.2 to 0.5% of total unemployed labour days. The scale of employment creation performance has been limited, due to i) the scale of budgetary allocations, (less than one percent of the annual social security and welfare budget), and ii) institutional constraints, relating to programme conceptualisation and design, and project management capacity, in both the public and private sectors. The multiplicity of programme objectives has also contributed to a lack of focus which has reduced the amount of employment generated.

In this paper simple models are used to estimate the impact and fiscal feasibility of 'expanded' public works programmes using the limited data available. The employment creation potential of a R1.2 billion investment in labour intensive construction over three years, is found to represent a maximum of 0.5% of unemployed workdays per annum. The cost to the fiscus of an expanded public works programme able to offer part time employment to a significant number of workers (3.2 million) is found be between R17 and R28 billion per annum.

Irrespective of the fiscal feasibility of this level of expenditure, such a programme is unlikely to meet the wider set of sustainable social development and economic objectives set out in the policy discourse, unless a series of institutional issues relating to project design and implementation are resolved. The limited duration of employment offered under public works may mean that the wage transfer functions as short term income shock, which is consumed, rather than leading to sustained benefits or livelihoods improvements for participants, a problem which is compounded by lack of access to microfinance. Targeting and rationing problems may be leading to a sub-optimal allocation of employment for the intended beneficiary groups, and the selection of appropriate assets for construction and rehabilitation is hindered by the lack of strategic development plans at local level. Limited project management and social development capacity in the public and private sectors is also serving to constrain performance.

In the light of this analysis it is concluded that while public works programmes are a valid component of a social protection policy, an expanded public works programme sui generis is unlikely to have a significant impact on the problems of poverty and labour market access, or their associate, growth, unless the proportion of government expenditure allocated to the programme is substantially increased, and the associated institutional constraints are addressed.

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.

There is a line in the works of an ancient poet that reads ‘The fox knows many little things, but the hedgehog knows one big thing’2. Scholars have differed on the exact meaning of these dark words. Taken figuratively, these words provide a comparison of the deepest differences that divide economists on the question of infrastructure delivery. On the one hand, many argue for a singular vision of infrastructure delivery, as meeting basic needs, within fiscal constraints. Moreover, that accelerating delivery will require the introduction of private sector management and finances. On the other hand, there is a growing body of literature that is focussed on understanding infrastructure delivery as part of programme for eradicating poverty, reducing income inequality and employment creation. This school of thought prioritises the understanding of social, economic and human development linkages in infrastructure delivery. This paper argues that the delivery of water and sanitation, housing, energy and roads must be assessed through the capabilities they provide, rather than the narrow focus on meeting delivery targets.

Today, development economics has embraced a wider set of considerations, than simply meeting basic needs. Recent studies have suggested that poverty is best understood as the being excluded through “lacking resources” (Townsend P:1985), or the absence of certain “capabilities to function” (Sen A. : 1993). The importance of these emerging approaches – which have many variants- are that they focus evaluation of government programmes away from simple figures towards understanding the wider impacts on society. Moreover, it poses the questions of directly and indirectly creating employment squarely within the ambit of public action.

Drawing on this approach to assessing public action, this paper explores two themes. First, an assessment of the economic impact of infrastructure delivery is provided. This analysis focuses on income security and employment opportunities. In arguing for a wider set of development objectives to be met through infrastructure delivery, the question of whether the public sector has the capabilities to meet a wider set of outcomes is raised. The question of public sector transformation (and in particular the ownership of state owned assets) is then succinctly addresses as the second theme.