Michael Sachs

Position: Adjunct Professor

Institution: University of the Witwatersrand

Expertise: Economist

Michael Sachs is the Adjunct Professor, Southern Centre for Inequality Studies, University of the Witwatersrand, Johannesburg. He was head of National Treasury’s Budget Office between 2013 and 2017 and research coordinator at the head office of the African National Congress between 2001 and 2007.

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Editor's Corner

Grants could dent unemployment

Unemployment rates in the second quarter of 2021 were the highest ever recorded. The effects of the Covid-19 pandemic and lockdown caused many to lose their jobs and as a result plunged them into poverty.

To stave off extreme suffering, government launched the Social Relief of Distress grants. These have recently been extended for another year, although Treasury has warned that their continued financing will require additional sources of revenue or reprioritization of spending.

But what if the grants – the first in South Africa to target unemployed adults – actually helped people back into, or into, the labour market?

In the last edition of Econ3x3, we published the results of research by Haroon Bhorat, Tim Köhler and David de Villiers that showed that the special Covid-19 grants not only provided urgent relief to those made jobless by the pandemic, but have also had a small but significant impact on key labour market outcomes.

In this edition of Econ3x3, we are re-publishing from The Conversation, an article that refines this theme and shows that grants can be much more than simple income-relief tools. With the right design, and combined with job-search assistance programmes, they can help young people into the labour market.

The authors, Kate Orkin, Ingrid Woolard, Maya Goldman, and Murray Leibbrandt, cite research showing how cash grants encourage recipients or their household members to more actively look for jobs.

Likewise, the SRD grants have been shown to increase the probability that recipients will participate in the labour market. If these were combined with job-search assistance programmes, the evidence is they could actually increase employment. So rather than being seen as a substitute for jobs, social grants, designed in conjunction with programmes that help reduce the barriers that job-seekers face, could enhance employment prospects.

Basic interventions such as certification of communication and numeracy skills, training in how to use platforms such as LinkedIn, and reference letters, have been shown to increase employer response, and also enable new workers to better communicate their skills.

The NGO Harambee, one of the most active organisations in helping young people enter the labour market, manages a job-seeker database that allows government to reach job-seekers and equips the latter with more information about the skills necessary for available jobs. Other basic interventions, such as providing airtime to job-seekers, and helping them prepare CVs, have also been shown to be effective. Importantly too, such organisations allow for young people to break the feelings of isolation and depression caused or exacerbated by unemployment.

Labelling the grant as a “job-seekers’ grant” could encourage recipients to be more active in job searches.

This article adds to the research published in the last edition of Econ3x3, where the authors used careful measurements to counter the popular wisdom that social grants discourage people from looking for work.

The authors show that these grants not only provided urgent relief to those made jobless by the pandemic, but have also had a small but significant impact on key labour market outcomes. Through a careful analysis using a Difference-in-Difference method, comparing the grant recipients not to non-recipients but to themselves had they not received the grant, they found that the grants increased the probability of employment, particularly in the formal sector.

This is a key policy finding, particularly when the country is burdened by other expenditure, and tight fiscal constraints. Highlighting this study’s findings, President Cyril Ramaphosa wrote recently that, with other employment programmes, such as the Presidential Employment Stimulus, it was a sign “that South Africa’s world-renowned social protection system provides important benefits for many in our society, not only those who receive social grants. It supports economic growth from the bottom up, enables business activity, and strengthens social solidarity and stability. .” (https://www.dailymaverick.co.za/article/2023-03-27-beyond-grants-sa-is-tackling-inequality-and-stimulating-growth/)

Unemployment is an ongoing and pernicious problem in South Africa. But the research published in this and in the last edition of Econ3x3 shows that relief grants for the unemployed may actually give people a leg-up into the labour market.

Pippa Green, April 19, 2023

Working Papers from the REDI3x3 project are available HERE

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A compilation of the research findings and policy proposals of the REDI3x3 Project has been collected in the book, A MEASURE OF OUR ILLS - and how we might fix them. Access the book here: https://bit.ly/REDI3x3book

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Michael Sachs

Articles

Grants could dent unemployment

READ, WRITE & REASON

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