The latest unemployment figures from Statistics SA were greeted with shock and outrage. It is a major concern that, according to the Quarterly Labour Force Survey (QLFS), 7.8-million people were officially unemployed in the second quarter of 2021.
The reality is worse. When we add people who have given up looking for work, we have almost 12-million people willing and able but not employed. Given an estimated labour force of about 27-million, this means the expanded unemployment rate is near 45%.
Labour market outcomes have been poor for many years. During the first quarter of 2008, the first time that the current version of the QLFS was published, 4.2-million people were unemployed.
At the time, discouraged work seekers numbered more than 1-million. Therefore, on the broader measure, roughly 5.5-million were unemployed.
Considering the expanded definition of unemployment, in excess of 6-million more people did not have a job in the second quarter of 2021 compared with early 2008. In the first quarter of 2008, the expanded unemployment rate was already around 30%.
For this measure to deteriorate by roughly another 15 percentage points to nearly 45% over the following 13 years is almost unthinkable. The level of private sector employment in the second quarter of 2021 was barely higher than in 2008.
Many factors help to explain this crisis. These include two severe external shocks, the global financial crisis (GFC) in 2007/8 and the Covid-19 pandemic since 2020.
The aftermath of the GFC resulted in a global economic downturn in 2009. Real GDP in SA contracted by 1.5% in that year. It was the worst GDP performance since 1994, with 1.2-million private sector jobs lost between 2008 Q4 and 2010 Q3.
More than a decade of power cuts, state capture, rising wages of low-skilled workers in sectors such as agriculture, and concerns about a lack of skills amid poor basic education outcomes were further constraints on employment.
The economy was already shedding jobs before the Covid hard lockdown and private sector job losses of
2.2-million in the second quarter of 2020.
The weak pre-Covid labour market followed a sustained period when domestic real GDP growth was unable to keep up with population growth. Real GDP growth averaged only 1% in the six years between 2014 and 2019. It meant that the economy was unable to absorb most new entrants to the job market.
Before this, real GDP growth averaged 4.5% between 2003 and 2008, translating into average total annual private sector employment growth of 3.4%.
During a period of sustained robust GDP growth, the economy was able to generate jobs. Therefore, the data does not support the often-heard narrative that GDP growth since 1994 has failed to deliver jobs. We need sustained growth at high levels for private sector jobs to materialise.
The paltry GDP growth between 2014 and 2019, and the sharp rise in unemployment since 2008 were despite more accommodative macro policy settings than in the preceding period.
Between 1994 and 2007, the repo policy interest rate averaged 12%. On average, the policy rate was almost halved to an average of 6.7% between 2008 and 2019. The policy rate was subsequently reduced further and remains accommodative at just 3.5%. After adjusting for forward-looking inflation, the policy rate is negative in real terms.
Although a major overhaul of South Africa's labour regulation is unlikely, some reform on this front is also long overdue
In terms of fiscal policy, expressed as a share of the economy's size, main budget non-interest expenditure rose from just below 23% of GDP during the 2006/7 fiscal year to 26.5% in 2019/20.
Expenditure rose to 28.5% of GDP in 2020/21. These numbers already incorporate the higher denominator (nominal GDP) after the recent GDP revisions.
Despite a much lower policy interest rate and more government spending, real GDP growth underperformed in the years before Covid-19.
The sustained poor growth of recent years should not be blamed on excessively restrictive macroeconomic policy settings. An even lower policy interest rate and/or much more government spending are not sustainable solutions to our employment conundrum.
If a company is not assured of reliable power and water supply, secure property rights, the enforcement of law and order, well maintained infrastructure (the freight rail network and ports), a stable regulatory environment, and municipalities that deliver basic services, it is far from obvious that an even lower lending rate and/or even higher levels of government spending will be catalysts for growth and employment.
Along with a more sustainable fiscal path and the associated lower longer-term financing costs, we need to reduce the broader cost of doing business in SA.
This ties in with Operation Vulindlela, the reform implementation initiative driven by the National Treasury and the presidency.
Alleviating the cost burden on business could go some way to securing increased private sector employment. Entrepreneurs tend to start small. Only as (or if) their businesses grow and become more profitable are they likely to employ more people.
The best way the government can support increased private sector employment is by enabling more sustainable businesses. Improving the supply of energy, through increased maintenance of Eskom's power stations and deregulating the energy market, are crucial steps.
Public-private partnership initiatives to improve the freight rail and port infrastructure, as well as stopping the theft of key inputs, could improve SA's exports.
Although a major overhaul of South Africa's labour regulation is unlikely, some reform on this front is also long overdue. This could, for example, include doing away with the current regulation that extends wage agreement from bargaining councils to smaller companies.
In addition, capable people need to be appointed across all levels of government. This should enable an adequate provision of services, including policing, that will prevent firm and individual income losses due to various outages and criminality.
Over the short term, it is crucial that all social partners, including civil society, work together to get as many people as possible vaccinated in as short as possible time.
With more jabs, jobs will be saved as normality returns, while some of the jobs lost in especially the hospitality and tourism sector should come back.
It is crucial that all social partners, including civil society, work together to get as many people as possible vaccinated. With more jabs, jobs will be saved or come back in the hospitality and tourism sectors.
Besides alleviating unemployment, there is another reason to chase sustainably higher GDP growth. This could ensure higher government revenue that is less dependent on cyclical mining-tax windfalls.
This will provide more fiscal space for the government to consider expanding the social safety net. At this stage there is no sustainable revenue source to finance it.
• Pienaar is chief economist at the Bureau for Economic Research, part of Stellenbosch University
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