THE debate on unemployment is fragmented, resulting in inconclusive analyses and narrow, flawed proposals to address the problem.
A critical survey of academic research done on South African unemployment in the past 10 to 15 years reveals that the work, though impressive, is split into at least three sub-discourses: those of macroeconomists, labour economists and poverty analysts.
Often these sub-debates seem to inhabit separate worlds. By and large, each group only focuses on their own theoretical models and empirical research, and rarely uses results from another group. As a consequence, disparate and even conflicting findings abound. A coherent and consistent picture of the unemployment problem – and possible solutions to it – has not been produced. Many analytical gaps remain.
This fragmentation feeds into the policy field – which often is not well informed about the research findings from all the groups. Different interest groups tend to consult, or rely on, favoured research results or experts. Ideological differences also play a role. This often results in inconsistent and narrowly informed policy proposals from different parties, such as business, labour unions, NGOs and even different government departments.
Yet important lessons can be learnt if one is willing to integrate understanding from all three sub-debates.
A major issue is the extent to which analysts incorporate the realities of the local labour market, and of South Africa as a developing country with widespread poverty, into their analyses of employment and unemployment.
From labour economists come repeated findings that the labour market is characterised by segmentation and dualism, such as between urban and rural areas, between the formal sector and the informal economy, and within the informal economy. Various factors create structural barriers for unemployed people to move between these segments or enter labour markets.
Development and poverty analysts highlight the existence, alongside the formal and informal sectors, of the worlds of subsistence and survivalist activities, both urban and rural. Very different dynamics operate in these worlds, mostly due to various forms of exclusion, marginalisation and powerlessness. Access to formal labour markets becomes very difficult. Barriers include adverse geographical location, and thus high transport costs; a lack of social networks to pass on information about jobs and to logistically support job search in cities; and a general lack of formal labour market information and modern economy know-how. These make job searches expensive and high risk for those with no assets and little cash.
Psychological and motivational problems due to prolonged periods of joblessness and poverty also significantly affect the job search effort and success.
In this way the condition of poverty as such debilitates and discourages the job search and access to labour markets. This means that, whereas unemployment causes much poverty, poverty in turn contributes to high and sustained unemployment. This may explain why high unemployment in South Africa is so persistent.
Thus a range of factors inhibit the job search and entry to labour markets from a condition of poverty and from one labour market segment to another. These factors prevent a free flow of labour into, especially, formal sector labour markets. The reach and smooth functioning of labour markets are severely constrained.
Most macroeconomic models and many labour market analysts tend to ignore these barriers to labour market functioning. They stress concerns such as labour legislation and do not recognise the structural constraints on labour markets.
Idealised models of formal labour markets, anecdotal evidence, “popular wisdom” and ideological preferences often seem to drive the public debate on the operation of labour markets and the causes of unemployment.
Much of the public debate on economic growth, labour regulations and skills constraints is not well informed by the research findings from the labour and poverty discourses and ignores the world outside the formal sector, where most poor people live and try to earn an income.
An excessive focus on the formal sector is a key weakness of the public debate and much analysis – while 30 percent of the employed are in the informal sector and 60 percent of job creation reportedly occurs in the informal sector. Most discussions proceed as if the problems and interests of those in the formal sector are all that matter – as if all solutions to unemployment are to be found there.
It is often simply assumed that the problem of unemployment, coupled with those of poverty and inequality, can be resolved by higher growth of the formal sector. But the rate at which employment is created by formal sector growth or by gross domestic product (GDP) growth is much too low – employment normally grows at half the rate of GDP. The demand for labour is lethargic and not well understood by analysts.
A strategy focusing on employment through growth – attempting to prime and fine-tune the “engine of growth” to absorb more labour – is fundamentally constrained as long as large sections of the working-age population are structurally excluded from accessing employment opportunities in the formal sector.
Other measures are necessary to facilitate access to employment and to develop sustainable income-earning opportunities, especially outside the formal sector. These aspects get little attention in the public debate on unemployment, which is dominated by formal sector interest groups, that is, organised business and organised labour. This serves to perpetuate our unsatisfactory unemployment situation.
It is unlikely that the unemployment rate will be significantly reduced by economic growth alone. The same applies to other “silver bullets” proposed, such as deregulating formal labour markets or increasing skills levels – or reducing interest rates and weakening the rand. These at best can affect mainly the formal sector and only have a limited effect on unemployment.
At the same time it should be noted that initiatives that focus exclusively on poverty relief and not on facilitating economically productive activities and income generation through self-employment or wage employment are unlikely to provide sustainable ways out of poverty.
Sustainable and consistent remedies for unemployment and poverty will require an integrated analysis that covers the formal sector, the informal economy and survivalist and subsistence activities. And especially the various linkages and transitions between these segments. Policy measures based on such an analysis are much more likely to have significant benefits.
* Frederick Fourie is a professor of economics at the University of the Free State. This piece is based on a paper presented at the Biennial Conference of the Economic Society of South Africa. Visit www.saldru.uct.ac.za