Latest Economic Research – The South African labour market, 1995-2013 Reply

This post about new research presents work by Lyle, Kasongo, Moses and Yu recently published as an ERSA working paper. The focus is on developments in the South African labour market since the end of Apartheid.

Developments in the South African labour market since the end of Apartheid is a popular field of study. The labour market has played a significant role in shaping not only the economy, but the society as a whole. In the past it was used as a mechanism to separate the population along racial lines. Apartheid legislation limited the education of non-whites, thereby predetermining the occupations they could occupy (non-skilled and low paid jobs only).

Since 1994, a host of legislative changes have thankfully taken place. These changes have been aimed at redressing past wrongs and imbalances, by outlining the rights of labourers, providing a minimum standard of working conditions and, encouraging the employment of more non-white workers, thereby beginning to redress and reduce the social inequalities so inherent to South African society.

Unemployment 1aMany studies have considered the initial impacts of these new policies and the changes to the SA labour market immediately after the end of Apartheid (first 10 years), but this latest study has continued the analysis up to 2013. They claim that the biggest challenge to the SA labour market remains the persistently high levels of unemployment which continue to plague the SA economy.

There are a host of reasons given for this:

  • An education system that produces a continued stream of insufficiently educated new workers. The effects of the 1953 Bantu Education Act have not been thoroughly redressed meaning that each year, a large number of unemployable youth enter the labour force.
  • Wage rigidity due to new legislation aimed at providing workers more protection and rights. Minimum wages above a market clearing level means that employers are unable to employ all the labour they would wish to.
  • Unrealistic reservation wages. Graduates expect to earn a high salary, and many individuals are reluctant to work if the income from labour does not exceed their monthly income from social grants (this is particularly the case amongst those who have many children or elderly individuals residing in their homes).
  • A small informal sector with big barriers to entry. This means those who cannot find work in the formal sector, are also unable to do so in the informal sector due to a lack of infrastructure and poor access to credit markets.
  • Slow job creation. The pace of job creation in the economy has not been quick enough to absorb all the new labour market participants, and has meant that unemployment continues to grow despite the growth in employment since 1994.
Labour Force 1a

The labour force has grown considerably, more than 8.5 million since 1994.

Long term labour market trends since 1994:

  • An increase in the labour force as more individuals chose to participate after 1994. Coupled with population growth, the labour force has grown to a broad total of 22 million in 2014.
  • An increase in the number of employed persons, from approximately 9 million in 1995, to over 15 million in 2014.
  • A persistently high unemployment rate – with the narrow definition growing from around 17% in 1995 to 25% in 2014.

Snapshots of the SA labour market:

  • Labour force participation – Blacks account for the greatest share of the labour force (76%), with Gauteng and the Western province accounting for 46.4% of total labour force. There was a decline in the share of labour force members with no schooling, and 17% of the labour force now has some post-Matric qualification. The labour force size in urban areas has also more than doubled across the period (7.5 > 15.5 million).
  • Employed 1a

    More than 3.5 million new jobs have been created.

    Employment – More than 3.5 millions jobs have been created since 1994, with blacks now accounting for 73% of total employed, and whites only 13%. Black employment growth is attributed to their increased educational attaintment and affirmative action policies. This has also helped women to increase their share of employment from 39.1% to 43.9%. There were also significant declines in the employment shares of those who have no education (8.1% to 2.4%) and youth (11.8% to 8.7%) whilst those aged above 45 now account for 28.9% of the employed. This evidence reflects the increasing demand for skilled labour from employers, and also validates the government’s youth wage subsidy.

  • Unemployment – Unemployment has increased by 2.8 million over two decades, with Blacks remaining as the highest share of the unemployed. There has been a decrease in rural unemployment, as workers move into urban areas, while youth unemployment has remained high, in excess of 49%. The unemployment rates between males and females also narrowed, whilst Whites and Coloureds’ unemployment rates remain the lowest, despite increasing since 1994. A key problem is the rise in long term unemployment – such that 71% of individuals under 24 have never worked before. This shows the need for active labour market policies to encourage and help youth find their first job.

Conclusion:

  • 'The unemployed in 2013 were most likely to be youngsters below 30 years, Black males, residing in urban areas of Gauteng province, with incomplete secondary education.'

    ‘The unemployed in 2013 were most likely to be youngsters below 30 years, Black males, residing in urban areas of Gauteng province, with incomplete secondary education.’

    The size of the labour force and labour force participation rates have increased since 1994.

  • Slow employment growth has meant that unemployment has not been reduced, and social inequalities have not been significantly reduced or addressed.
  • Race still plays a major role in employment and despite Affirmative Action and Black Economic Empowerment initiatives, there remain persistent disparities between Blacks and other races in South Africa.
  • As a result of structural change in the SA economy, a move from primary sector to tertiary sector goods and services, there is an increased demand for skilled workers as the tertiary sector industries have grown. This may account for the increased employment likelihood of older individuals due to their accumulated experience and higher skill levels.
  • The population has grown more educated and gender equality legislation has also had a positive impact on female employment and wages.

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