Unemployment In South Africa PDF

UNEMPLOYMENT IN SOUTH AFRICA  UNEMPLOYMENT IN SOUTH AFRICA Introduction: Unemployment is one of those economic factors that has been studied and examined for many years. It is one of the most important indicators of the economy and one of the indicators that governments and econom...

UNEMPLOYMENT IN SOUTH AFRICA  UNEMPLOYMENT IN SOUTH AFRICA Introduction: Unemployment is one of those economic factors that has been studied and examined for many years. It is one of the most important indicators of the economy and one of the indicators that governments and economists follow closely. It is important to understand the definition of unemployment as well as the reasons that unemployment exists. The chapter will also examine the effects of unemployment on a society and on the economically marginalised and consider some suggestions on how to help those groups.  NATURE OF UNEMPLOYMENT Defining unemployment: In order to discuss unemployment, it is important to understand how economists define unemployment and measure it. Some of the key definitions are listed and described below: ✓ The working-age population comprises all persons aged 15–64 years. ✓ Economically active population (labour force): The sum of employed and unemployed persons. ✓ Unemployed (official definition): Persons aged 15–65 who do not have a job or business, but have looked for work or taken steps to start a business, but were unable to obtain one. ✓ Not economically active (not in the labour force) people are persons who are neither employed nor unemployed. This category includes full-time scholars and students, full-time homemakers, those who are retired, and those who are unable or unwilling to work. ✓ Underemployment: Refers to workers who have high skills levels in low-wage jobs that do not use their abilities. For example, someone with a university degree who is working as a waiter.  Sep. Sep. Sep. Sep. Sep. Sep. Sep. Sep. NATURE OF Thousands 03 04 05 06 07 07 09 10 UNEMPLOYMENT: 11 12 13 13 13 13 12 12 Unemployment in Employed 959 265 034 601 609 655 885 975 South Africa: 3 3 4 3 3 4 4 4 Unemployed 947 659 001 859 623 122 192 396 The table shows the Not composition of the economically 12 13 12 12 13 13 14 14 South African labour active 679 156 521 539 182 024 095 702 market from 15 15 17 17 17 17 17 17 September 2001 to Labour force 906 924 035 460 232 777 077 371 September 2007: Population of 28 29 29 29 30 30 31 32 working age 585 080 556 999 414 801 172 072  NATURE OF UNEMPLOYMENT Unemployment rates: Economists will often use the unemployment rate, the labour absorption rate and the labour force participation rate as indicators of the success or failure of certain economic policies or to examine the state of the economy. ✓ Unemployment rate: The number of unemployed persons expressed as a percentage of the labour force. ✓ Labour absorption rate: The percentage of the population of working age who are employed. ✓ Labour force participation rate: The number of persons in the labour force (employed) expressed as a percentage of the population aged 15–65 years.  NATURE OF UNEMPLOYMENT Unemployment rates: Sep.0 Sep. Sep. Sep. Sep. Sep. Sep. Sep. Percent 3 04 05 06 07 07 09 10 Unemployment 24, 23, 23, 22, 21, 23, 24, 25, rate 8 0 5 1 0 2 5 3 Employed/Populati on ratio 41, 42, 44, 45, 44, 44, 41, 40, (Absorption rate) 8 2 1 3 7 3 3 5 Labour force 55, 54, 57, 58, 56, 57, 54, 54, participation rate 6 8 6 2 7 7 8 2  NATURE OF UNEMPLOYMENT Characteristics of South African unemployment: The figures in the tables below are taken from the Labour Force Survey done by Statistics South Africa – the official government statistical bureau. The survey is released every quarter and allows economists to examine the nature and characteristics of South African unemployment.  NATURE OF UNEMPLOYMENT Characteristics of the unemployed (in ‘000): Sep. 08 Sep. 09 Sep. 10 Total 4114 4192 4241 Job losers 1172 1477 1488 Job leavers 402 338 340 New entrants 1746 1615 1633 Re-entrants 253 193 195 Other 541 570 584 Unemployed by gender (in ‘000): Sep. 08 Sep. 09 Sep. 10 Total 4122 4192 4396 Women 2150 2080 2183 Men 1972 2113 2214  NATURE OF UNEMPLOYMENT Unemployment rate by population group (%) Sep. 08 Sep. 09 Sep. 10 Total 23,2 24,5 25,3 Black / African 27,4 28,8 29,8 Coloured 19,1 21,6 22,3 Indian / Asian 11,7 12,7 8,6 White 4,1 4,8 5,1 Unemployment rate by province (%) Sep. 08 Sep. 09 Sep. 10 Total 23,2 24,5 25,3 KZN 22,0 18,7 19,7 WC 19,7 22,5 23,1 LP 29,5 25,5 25,1 NC 22,7 29,9 25,8 GP 21,8 25,8 26,7 EC 27,4 26,8 27,2 NW 26,7 27,9 28,0 MP 23,2 25,7 28,4 FS 22,9 28,6 29,5  NATURE OF UNEMPLOYMENT Causes of unemployment: Frictional unemployment: While some businesses and industries expand, others get smaller. This means that people often move from one job to another. They will go to different job interviews and employers will look at many candidates before deciding whom to employ. While people are looking for new jobs, they are said to be frictionally unemployed.  NATURE OF UNEMPLOYMENT Seasonal unemployment: Some businesses and industries have very busy periods, during which they need lots of workers, and very slow periods, during which they need fewer or no workers, for example, the farming and tourism sectors. Seasonal unemployment happens when there are jobs that need people only for certain months in the year. The workers are unemployed during the slow period and re-employed during the busy season. Cyclical unemployment: Cyclical unemployment varies according to the business cycle. When the demand for goods and services drops (recession) and employers cannot afford to keep all their workers, so some people lose their jobs – unemployment increases. When the economic activity increases, more people start demanding goods and services again and the employers re-employ people.  NATURE OF UNEMPLOYMENT Structural and technical unemployment: Structural unemployment happens when there are fundamental or big changes in the economy of the country. Structural unemployment can happen as a result of a number of factors: Production methods and techniques change: Workers may not have the skill to use new technology or may not be needed to operate new technology. For example, ATMs replace bank tellers. Foreign competition increases: Products coming in from overseas mean that South African businesses might not be able to compete with the cheaper prices and may have to lay off workers. Important industries change: For example, a low demand for gold causes mines to close and people lose their jobs. Structural unemployment is a serious problem. Workers have to be re-trained or moved from one area to another where they can find work where their skills and qualifications are needed.  NATURE OF UNEMPLOYMENT Real wage (classical) unemployment: Classical or real-wage unemployment occurs when wages are set above the market- clearing (equilibrium) level. This causes the number of job-seekers to exceed the number of jobs and there is therefore an excess supply of labour. Traditionally, trade unions and minimum wage legislation are seen as the factors causing this type of unemployment.  NATURE OF UNEMPLOYMENT Effects of unemployment: Unemployment has a negative impact on the unemployed individual as well as on business, government and society as a whole. Economists can make a distinction between the economic costs arising from people out of work and the social costs that often result.  NATURE OF UNEMPLOYMENT Economic costs of unemployment: There are a number of factors that contribute to the economic cost of unemployment. ✓ Lost production and output of goods and services: Unemployment causes a waste of scarce economic resources and reduces the long run growth potential of the economy. An economy with high unemployment is producing within its production possibility frontier and there is an inefficient use of resources. If unemployment can be reduced, total national output can rise, leading to an improvement in economic welfare.  NATURE OF UNEMPLOYMENT ✓ Business pressures: If more people were employed, more would be able to buy goods and services. High levels of unemployment cause businesses to lose income in the form of profits that could have been made if the economy was growing. ✓ Fiscal costs to the government: An increase in unemployment results in higher benefit payments (unemployment and welfare payments) and lower tax revenues. When individuals are unemployed, not only do they receive benefits but they also pay no income tax. As they are spending less, they contribute less to the government in indirect taxes. This rise in government spending along with the fall in tax revenues may result in a higher budget deficit. ✓ Loss of investment in human capital: Unemployment wastes some of the scarce resources used in training workers. Furthermore, workers who are unemployed for long periods become de-skilled as their skills become increasingly dated in a rapidly changing job market. This reduces their chances of gaining employment in the future, which in turn increases the economic burden on government and society.  NATURE OF UNEMPLOYMENT Social costs of unemployment: Unemployment also affects society and individuals. Although they cannot always be measured directly in monetary terms, they have an impact on the economy as a whole. ✓ Social and family pressures: Studies have shown that increased unemployment leads to increased pressures on societies and communities. Crime usually increases as unemployed people try to survive without an income. There have also been studies showing that domestic violence and the break-up of families increases among the unemployed. ✓ Increase in poverty and income inequality: Areas of high unemployment will also see a decline in real income and spending, together with a rising scale of relative poverty and income inequality.  NATURE OF UNEMPLOYMENT ✓ Community demographics: As younger workers are more geographically mobile than older employees, there is a risk that areas with above average unemployment will suffer from an ageing workforce, making them less attractive as investment locations for new businesses. ✓ Community fears and pressures: High unemployment can encourage xenophobia and protectionism as workers fear that foreigners are stealing their jobs.  APPROACHES TO SOLVING UNEMPLOYMENT: Growth of production: There is a strong link between economic growth and employment. It follows that if a country is producing more goods and services (economic growth), we are going to need more people to manufacture and produce them (lower unemployment). Some of the methods that government can use to improve our economic growth rate and improve production in South Africa are listed below.  APPROACHES TO SOLVING UNEMPLOYMENT: ✓ Encourage the development of small and medium-sized businesses: These businesses tend to use more labour than large business. The government can encourage the development of entrepreneurial skills and thinking, as well as providing tax incentives or subsidies to people wanting to open a small or medium-sized business. ✓ Education and training: To improve the productivity of our labour force, government must make sure that there are proper education and training opportunities available. Improving the quality of labour and increasing skilled labour will promote production.  APPROACHES TO SOLVING UNEMPLOYMENT: ✓ Promotion of local industry: Through the “Buy South African” and “Proudly South African” campaigns the government can stimulate and encourage people to buy local products. If the citizens of a country spend more money on products made by local manufacturers, there will be an increased demand for local products. This will lead to increased production and a need for more people to be working and be productive within the economy. ✓ Technology: Industry in South Africa must be more aware of using the correct technology in production. Improving technology and buying new machines to increase productivity should be done cautiously so that it doesn’t result in lost jobs. Proper technology and appropriate training of the workers with that technology will increase productivity.  APPROACHES TO SOLVING UNEMPLOYMENT: Public works programmes: The Department of Public works is responsible for managing many of the country’s immovable assets, parastatals and the Expanded Public Works Programme, which is an initiative started by the government to create work for the unemployed and raise living standards. It usually involves things like building roads, laying pipes, building low-cost housing, cleaning up communities, and building dams.  APPROACHES TO SOLVING UNEMPLOYMENT: ✓ A public works programme can have some important benefits: They can target specific groups of people and specific communities. They can be used to improve the standard of living within specific communities by providing them with things that they need desperately. Workers with increased income will spend it on consumer goods and service in their community, therefore stimulating business in their area. ✓ A public works programme will not solve the structural unemployment problem. It is merely one element within a government strategy to reduce poverty through the alleviation and reduction of unemployment. The programme must also be careful not to displace existing permanent jobs and all opportunities and work must be based on real demand for services.  APPROACHES TO SOLVING UNEMPLOYMENT: Unemployment insurance: ✓ Unemployment insurance is a system for protecting people who had been working and who were laid off. When people are employed in the formal sector of the economy, they are forced to pay 1% of their salary to the Unemployment Insurance Fund (UIF). If they are later retrenched, they can claim benefits back from the fund for a period of between 6 to 12 months. The fund pays a percentage of the wage or salary that people have earned while contributing to the fund. The highest amount that can be paid is 58% of daily earnings. You cannot claim if you have voluntarily resigned from your job. ✓ The fund allows people who have contributed and who are unemployed and ill or pregnant to receive benefits from the fund. By allowing people who have become unemployed to claim money for a period they are provided access to funds for food, clothing and shelter, which will help to keep them going until they find another job.  ECONOMICALLY MARGANILSED GROUPS: Defining the economically marginalised groups: Economically marginalised groups are those that find it difficult or impossible to participate in economic decisions and activities. Some of the situations that could contribute to economic marginalisation include: limited or no access to education poor health or disabilities cultural factors poor infrastructure in the community  ECONOMICALLY MARGANILSED GROUPS: gender age geographical location (rural vs. urban opportunities) immigrants. The market economy does not work for everyone. The benefits of economic growth and of some social programmes do not reach all parts of a country. The government must be constantly aware of these groups of unemployed and marginalised citizens, and measures should be put in place to uplift and re-employ these groups.  ECONOMICALLY MARGANILSED GROUPS: Options to solve economic marginalisation: Listed below are some options to solve economic marginalisation: Economically marginalised groups should be targeted for education and training. This will improve their quality of life and help with economic growth in their communities. The government should focus on building better facilities, such as schools, hospitals and police stations in those communities that need them desperately. Government should monitor and examine information about these groups and how the changes are affecting them. Skills training for young women and men on entrepreneurship and small business development. Poverty alleviation through community-based job creation schemes in rural and urban areas. Empowering young women for long-term livelihood security.  UNEMPLOYMENT IN SOUTH AFRICA HOMEWORK: Exam practise on ITSI in E-Books at end of the chapter : Section A: Short type questions Section B: Longer type questions Section C: Essay question THANK YOU  HOMEWORK: Section A 1. Choose the most appropriate word(s) from the list that fits the description below. Write only the correct word(s) next to each question number. seasonal unemployment labour force absorption rate frictional unemployment public works programme structural unemployment unemployment rate cyclical unemployment economically active population unemployment insurance fund underemployment real-wage unemployment jobless growth  HOMEWORK: 1. Unemployment that happens when there are fundamental changes in the economy of the country. 2. The percentage of the population of working age who were employed. 3. Government created jobs to improve living standards of the population and decrease unemployment. 4. That component of unemployment that is unavoidable because it occurs as a result of people moving between jobs. 5. The number of unemployed persons, expressed as a percentage of the labour force. 6. Workers who have high skill levels in low-income jobs where their skills are not used. 7. Employees pay 1% and employers pay 1% of wages to this. 8. Increased production of goods and services, but without decreasing unemployment. 9. Unemployment that happens due to wages for a job are set above the market-clearing level. 10. The sum of employed and unemployed persons. (10 × 2)  HOMEWORK: Section B 2. Read the article below and answer the questions that follow: Poverty only part of South Africa’s unemployment monster By Neva Makgetla Meet two people who are typical of South Africa’s jobless: Nhlanhla is 23. She dropped out of school in grade 11 to have a child, and has since searched sporadically and fruitlessly for employment. Abie is 40 and lives in the former Transkei. He has only four years of education. He stays with his mother, a sister and her children. They live off remittances that a brother and sister send from Cape Town, his mother’s old-age pension, and some trading and gardening. He hasn’t looked for a job in years, because he knows it’s hopeless. The family goes hungry regularly when the pension money runs out. These two stories point to important but often overlooked aspects of the unemployment crisis. To start with, the formal unemployment figures significantly understate the number of people who need paid employment but don’t have it.  HOMEWORK: The low labour force participation rate in the former homeland regions poses a quandary for policy makers. It means that as employment creation accelerates, more people will likely start looking for work. The location of the new jobs is also important. Two out of five jobless people are in former homeland areas. But job creation there has stagnated, although it has grown substantially elsewhere. Moreover, even among the employed, two-thirds earn less than R1 000 a month. Unless the challenge of slow and poor-quality job growth in the former homeland areas is addressed, the consequence is likely to be accelerating rural-urban migration. In addition, many homeland households would continue to need social grants despite improved job creation. Still, while poverty is deepest in the former homelands, urban young people form the largest group of unemployed. Youth under 30 make up 36% of the working-age population and 31% of the employed. But they constitute an extraordinary 62% of the unemployed. As a result, most unemployed people are young, fairly well educated, and have never had a job. The average unemployed youth has 11 years of formal education, admittedly often of poor quality. Three-quarters have not been employed since leaving school. Unemployment harms young people as much socially as economically. Young adults cannot go through a normal process of growing up. Instead, they stay dependent on their families at an age where they should be moving out and engaging in society as independent adults. This situation certainly contributes to violence, teenage pregnancy and drug use.  HOMEWORK: 1. 2.1 Using Abie and Nhlanhla as examples, explain the difference between the terms “unemployed” and “not economically active”. (4) 2. 2.2 What is the labour force participation rate? (2) 3. 2.3 Why is the labour force participation rate so low in the former homeland regions? (4) 4. 2.4 Explain why a low labour force participation rate causes a “dilemma for policy makers”. (4) 5. 2.5 Briefly explain the impact of increased education and training on unemployment in South Africa. (4) 6. 2.6 Define the term “economically marginalised people” and list two examples. (4) 7. 2.7 Identify, and briefly describe, two economic costs and two social costs caused by unemployment, mentioned in the article. (8) 8. 2.8 With reference to the article, explain two types of unemployment. (8) 9. 2.9 Discuss three policies that you think the government should pursue in order to overcome the growing crisis of unemployed young people. (12)  HOMEWORK: Section C 3. Job advertisements like the one below are always available in the Sunday newspapers. In spite of these advertisements, people are always unemployed. Write a memorandum to the Minister of Labour discussing the impact of unemployment on the South African economy and suggest steps that can be taken by the public sector and government to solve the problem of unemployment in South Africa.