BRIAN KANTOR: Work not rewarding enough for many classed as unemployed

The Quarterly Labour Force Survey released this week provides estimates of employment and unemployment that are way beyond the norm for developed economies, for which employment surveys are designed. They come as no surprise.

In the fourth quarter of 2021, 262,000 more jobs were provided in SA compared with those of the quarter before, while an additional 278,000 more workers were declared unemployed, taking the unemployment rate marginally higher to an extraordinary 35.03%.

The SA labour force is estimated at 22.4-million, of whom 14.5-million are working and 7.9-million are actively seeking work. The labour force represents but 57% of the working-age population (ages 15-65), which leaves 17-million adult South Africans not economically active.

There is more to the depressed employment statistics in SA than slow growth. In 2000 there were 40% more people employed per unit of GDP than there were in 2000. These latest estimates continue to show employment in SA lagging well behind GDP, flatlining at about 94% of the pre-lockdown level. By contrast, GDP fell sharply to 84% of its pre-Covid-19 level by Q2 2020, but has since recovered to 98.3% of its pre-Covid-19 level.

How are these employment statistics, particularly the unemployment estimates, to be interpreted and reconciled with estimates of income and expenditure in SA? Part of the problem with estimating unemployment, especially where the unemployed are not simply and conveniently measured when collecting unemployment benefits, is that the unemployed are largely self-defined in SA. One may be not working, yet willing and able to work at short notice and indicate as such to a telephone enquiry from Stats SA and so be classified as unemployed.

However, such a respondent (perhaps in a rural area) may only be willing to work for rewards that are unavailable and unrealistic to expect. Hence such a potential worker is not part of the labour force and more accurately should be regarded as not economically active, rather than unemployed. SA may have an employment problem, not an unemployment problem on anything like the same scale.

The more the consumption power provided to households in kind and cash, other than via income from work, the higher the wage will  tend to be that would makes it sensible for potential workers to accept employment — what economists describe as the reservation wage, below which it makes little sense to supply labour.

Welfare benefits provided by the taxpayer, housing, medical care and cash grants, or help provided by an extended family, all help raise the wage rates employers have to offer when seeking a supply of workers. The tragedy is that so few South Africans qualify for the well-paid decent work offered by employers that would, if available, encourage many more of them to actively join the labour market. The excluded workers should blame the failures of the education system to qualify them for the decent work and accompanying benefits that formal employers mostly prefer to provide.

SA chose to address poverty with welfare rather than by encouraging employment. It was a humane response, and SA was economically able to redistribute consumption power on a meaningful scale. But it has had consequences. The more generous the welfare system, the better the employment benefits that have to provided by firms seeking labour, and so the fewer workers employed. There is a negative relationship between the price of labour and the demand for it, even if denied by the economists (nogal) who advocate and regulate higher minimum wages.

Higher wages have also encouraged the supply of and demand for immigrant labour, who arrive in SA with lower reservation wages determined to support their families by earning and transferring income to them. They are more readily hired because they can be more easily fired. The unregulated, employment intensive sectors of the economy are heavily populated by migrants — an unknown and un-estimated number, many working illegally. Their employment status will not be established with a phone call.

• Kantor is head of the research institute at Investec Wealth & Investment. He writes in his personal capacity.