Restarting economy will benefit all social classes — even chronically poor
National Income Dynamics Survey shows jobs and wages matter for category too as labour income makes up 37% of income
As SA’s lockdown continues at level 4 this is a time of open letters, appeals to, and harangues of, the government. We understand and have supported the initial lockdown. We realise SA has to strike an almost impossible balance between saving lives and livelihoods. We are sure the government is familiar with the estimates of the impact of the lockdown on economic activity and employment.
Our arguments for getting people back to work as soon as possible draw on research using the National Income Dynamics Survey. SA households can be grouped into five social classes: the chronically poor, the transient poor, the vulnerable, the middle class and the elite. What characterises the different classes are their sources of income.
The chronically poor make up 50% of households and receive more than half of their income from grants. They will be the main beneficiaries of government’s support package. Yet even for these households, jobs and wages matter. Only 30% of them have someone who is employed, but labour income makes up 37% of their income (with another 6% share from remittances).
Wages matter more than any support the government can give
Of these employees, slightly more than half work in the formal sector and a little more than a third of them have a permanent contract. For the transient poor and the vulnerable, labour income matters even more. Though their share of households with someone in employment is only just above 50%, wage income makes up two-thirds of the household income.
It is different for the middle class, who receive most of their income from labour and some investments. About 95% are employed in the formal sector with 81% on permanent contracts.
The numbers starkly show what we can intuit: few South Africans will continue to be paid while not working during lockdown, or perhaps while working from home. Wages matter more than any support the government can give. Many face the increasing possibility that their jobs will no longer exist if the opening of the economy is delayed too long.
We cannot afford to put the achievement of guaranteed safety in the workplace ahead of the resumption of normal economic activity. Where the government has taken the lead in protecting its citizens during the five-week lockdown, everyone now has to take responsibility for their own health and safety through social distancing, hand-washing, sanitising, and wearing masks, while trying to earn an income.
There are also concerns about further compliance with certain regulations of the alert level 4 from the insights of behavioural economics. Our behaviour is governed by reward principles. If what we do is followed by some “reward” we are likely to keep doing it. Staying locked down and not contracting the coronavirus is a reward, but as time passes people’s resolution begins to fray — our relatively low infection rate makes “not getting sick” seem like less of a reward, balanced against losing a job and the greater share of our income.
Many South Africans seem to have an optimism bias that “it won’t happen to me”. In addition, non-compliance with level 4 regulations will become widespread when certain of those regulations are viewed as irrational or punitive.
Strict regulation of the distribution of food aid seems inappropriate in a time of crisis. It can become a rallying point for civil disobedience for a good cause. Most people also fail to see the logic of opening shops but limiting the range of goods that are for sale (as in the case of winter clothing), or of restricting e-commerce and deliveries.
Economists would argue that if you are willing to spend money on something, it is essential to you. If we are already out shopping, we might as well get everything that we need. Even better if we can get all of it delivered.
We believe it is possible to get people to limit their mobility and social interactions to take responsibility for their own health and safety, while also getting back to work. We call on the government to restart the economy in the interest of the people of SA.
• Prof Rossouw is president-elect, Prof Krugell current president, Prof Keeton a past president, and Burrows secretary, of the Economic Society of SA.
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