The inflexibility of the labour market is commonly used as a scapegoat to explain high unemployment. Yet new evidence shows that only in specific contexts (unionized workers in the short run) does wage rigidity restrain the ability of the labour market to absorb workers. In the long run, wages are much more flexible and structural factors explain more of the unemployment puzzle. The policy debate on unemployment and wage flexibility needs to take these subtleties into account.
It is important to know whether a social grant such as the old age pension eases financial constraints in rural areas, thereby allowing young men to migrate to urban areas for work – or whether these grants encourage idleness and dependency. This study finds no evidence of the latter. Instead, for young rural males there is an increase in their chances of migrating and finding work when a member of the household starts receiving the pension. Notably, these effects are only present for young men with at least a matric.
What caused the increase in unemployment in the late 1990s? Were education policies partly responsible?
In the late 1990s the Department of Education restricted the re-enrolment of over-aged learners and the number of times underperforming learners could repeat a grade. This was intended to reduce the number of learners in the school system, but may have contributed to a sudden increase in measured unemployment. Of the 2.3 million increase in the number of unemployed between 1997 and 2003, up to 900 000 may be due to unintended effects of these policies which brought hidden (youth) unemployment into the open.
New evidence suggests that non-searching unemployed people are significantly less satisfied with their lives than people who are not economically active. Indeed, the non-searching unemployed have hit rock bottom. Assuming that people do not freely choose an unsatisfactory state of living, a case is made that the non-searching unemployed – or ‘discouraged workers’ – are involuntarily unemployed and should be included in the definition and measurement of the labour force. Consequently, a case is made for the adoption of the broad measure of unemployment.
The frequently reported ‘crisis in graduate unemployment’ in South Africa is a fallacy based on questionable research. Not only is graduate unemployment low at less than 6%, but it also compares well with rates in developed countries. The large expansion of black graduate numbers has not significantly exacerbated unemployment amongst graduates. Contrary to popular perception, such graduates – many from ‘formerly disadvantaged’ universities – have been snapped up by the private sector. Black graduates are, however, still more likely to be unemployed than white graduates.
In trying to reduce unemployment in South Africa, the pursuit of higher economic growth is the single most agreed-upon policy strategy. The consensus on this ‘obvious solution’ may blind us to the fact that economic growth, though important, may only be half of the solution. Attempts to fine-tune and turbo-boost the formal-economy ‘engine of growth’ to absorb more labour are fundamentally constrained. Economic policy makers must look at other options for generating employment and self-employment for unemployed people.
The official rate of unemployment includes only the unemployed who are actively searching for work. However, findings from new data challenge this practice. The ‘searching unemployed’ are no more likely to find employment than the ‘non-searching unemployed’. This casts doubt on the idea that non-searchers are not committed to finding work. Furthermore, many people find jobs through social networks – but this job-finding strategy is not adequately recognised as ‘searching for work’ in official statistical surveys. StatsSA should reconsider how they count the ‘officially’ unemployed.
Adcorp’s estimated unemployment rate is so low that it disposes of the unemployment crisis. But Adcorp uses a crude currency-demand method to estimate the size of the unrecorded economy, despite researchers’ strong criticism of this method. To estimate informal sector employment, Adcorp mixes up definitions of informal employment and the unrecorded economy and guesses at the labour intensity of the unrecorded economy. They also guess at the number of illegal immigrants. Moreover, Adcorp’s estimates have no statistical precision. Its figures are neither reliable nor credible.
Adcorp’s employment and unemployment figures are not taken seriously by researchers – yet they can do much harm
Adcorp’s unemployment figures are derived from weak research and is repeated too often by gullible journalists. Based on a flawed methodology and dubious assumptions, the Adcorp figures imply that only about a million people are unemployed and that the total unemployment rate is 5%. At the same time, Adcorp has published an inflated figure for graduate unemployment (600 000) – a grave inconsistency. Whilst serious researchers will not touch Adcorp data, it can harm decision-making by policymakers and potential university students and their parents.
The debate on unemployment is fragmented into at least three sub-discourses, i.e. those of macroeconomists, labour economists and poverty analysts. This results in inconclusive analyses and narrow, flawed proposals to address the problem. This fragmentation feeds into the policy field. Sustainable and consistent remedies for unemployment and poverty will require an integrated analysis that covers the formal sector, the informal economy and survivalist activities – and especially linkages and barriers between these segments.