Covid-19 has exposed the gaping inequalities in SA’s labour market
Large segments of the labour force, such as gig workers, temps and rural workers are on their own, and government loans will make little difference
The SA labour market was in ICU long before the onset of the Covid-19 pandemic. But the unfolding crisis will put it firmly on life support for years unless the elusive “vaccine” by way of big government stimulus packages and smart labour activation programmes are initiated to get businesses restarted and save jobs.
The country shed about 1-million jobs during the 2008 financial crisis and has not recovered. So how long will it take to recover jobs from Covid-19, which is a much deeper, sharper and more traumatic crisis? For instance, the world’s most elastic labour market, the US, saw unemployment increase from 4.4% to 10% over two and a half years during the 2008 financial crisis. Yet it took seven years to recover to pre-crisis levels.
Lockdown measures, though necessary, are going to have devastating consequences on global labour markets. But here is the difference: countries that adjust quickly to the labour demand-supply disequilibrium tend to reduce unemployment rates a whole lot faster than others that do not. Since our country falls into the “others” category, the labour market outlook is gloomy. We can be sure that impending business closures and downsizing will lead to employment contraction on a massive scale. This will become patently visible after the Covid-19 crisis.
The pandemic will worsen our anaemic labour market performance, which is a manifestation of low to negative growth and poor labour market policy choices.
The narrow employment rate has trended upwards from 23.5% in the first quarter of 2008 to 29.1% in the fourth quarter of 2019. The corresponding figures for expanded unemployment, which includes discouraged work-seekers, grew from 30.9% to 38.7%.
The trick is to prevent distressed employees from becoming unemployed and impoverished. It is considerably more costly and challenging to create new jobs, especially in a no-growth economy
This translates to 10.381-million unemployed workers in the active labour force. Unemployment rates have risen steadily and are on an upward trajectory. We can expect a further 1-million to 2-million job losses in the formal labour market with the Covid-19 shock.
Virtually all industries, with the notable exception of healthcare, IT and food production, are at a standstill. Retail, tourism, hospitality, construction, leisure, real estate, air travel and manufacturing businesses will face the full brunt of Covid-19.
The pandemic has drained the proverbial swamp and exposed our vulnerabilities in public health, education, social welfare, local government, housing, sanitation and water provision. Covid-19 has exposed the gaping inequalities in our society more than ever before. Civil society groups and businesses have been at the forefront of distributing food, alleviating hardships and fighting the virus in hard-pressed communities.
In this conundrum, the state’s response to rescue businesses and save jobs is too little, too late. We cannot talk of a government stimulus package in the real sense of the word. A few loans here and there for small businesses will not cut it.
Large segments of the active labour force, such as gig workers, temps contracted to labour brokers, informal and rural workers, and unemployed youth are on their own. Small businesses are faced with a mountain of bureaucracy to apply for loans, not grants. The banks are not giving anything away to their clients. There is no recourse for informal traders to receive state support.
UIF and Ters
The Unemployment Insurance Fund (UIF) is exclusively for the unemployed, and the Covid-19 temporary employee relief scheme (Ters) won’t do it. Helicopter drops are needed to help small businesses. Instead, they are offered tax delays and loan holidays.
From a labour market perspective, the government paid some attention to supporting job creation before Covid-19, without much success. The attention should now shift decisively to retrenchment mitigation schemes: the focus should be on retaining existing employees. The trick is to prevent distressed employees from becoming unemployed and impoverished. It is considerably more costly and challenging to create new jobs, especially in a no-growth economy, than supporting businesses, especially small ones, to keep workers in employment. Where job losses are unavoidable, more effort should be placed on survival mechanisms and enhancing employability.
Currently, the government’s only retrenchment mitigation effort is the training layoff scheme. Its performance, since inception, has been unspectacular. The scheme was meant to be a rapid response intervention to distressed companies but hastened liquidation due to unwieldy bureaucracy, poor leadership, weak implementation and slow turnaround. It’s a classic case of the medication being worse than the disease. What is needed is an immediate reconfiguration of the training layoff model so that it is fit for purpose.
The state’s initial policy response is focused heavily on preventing retrenchments and protecting workers by supporting small businesses. This is a correct one. The government, banks and philanthropists have moved to give loans to badly hit businesses. These initiatives will save some companies and jobs, but it needs to be scaled up exponentially.
There is also a need for more accessible, eligible and less cumbersome unemployment insurance. Ters should be far more generous than the national minimum wage thresholds to bring relief to a broader cohort of employees. Executives and public-sector employees need to take wage cuts, as they cannot be immune to the gyrations of the economy.
There is a whole range of other job mitigation strategies that can be deployed, but limited fiscal space negates these possibilities in the current economic climate. SA needs to do a whole a lot better with the resources we have at our disposal.
• Prof Rasool is a labour market analyst at FR Research Services.
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