A country can only create the amount of jobs it is allowed to

Johann van Tonder, Economist at Momentum Investments

Why we need to look at the latest unemployment stats in context

All countries have their own laws, regulations and policies and this to a very large extent determines the environment within which jobs can be created. Should such an environment not be “job creation friendly”, a country will not be able to create as many jobs as it otherwise could have. Job creation becomes even more difficult when a pandemic such as COVID-19 causes regular restrictions on an economy’s ability to grow and create jobs.

South Africa’s labour market numbers for the first quarter should be interpreted within this context.

Stats SA estimated South Africa’s official unemployment rate at 32.6% in the first quarter of 2021, marginally higher than the 32.5% estimated in the fourth quarter of 2020. However, context is needed again. The fourth quarter’s numbers are always skewed by seasonal workers that increases the number of employed temporarily, contributing to a lower unemployment rate. The opposite occurs in the first quarter when the seasonal workers are not working anymore. It is therefore more appropriate to use the seasonally adjusted unemployment rate as published by the South African Reserve Bank (SARB). Although the SARB has not yet released the seasonally adjusted unemployment rate, it is possible to calculate such a number. 

According to our calculations the seasonally adjusted official unemployment rate for the first quarter of 2021 is 32.4%, which is actually lower than the 33.2% of the fourth quarter of 2020. Nevertheless, it is still the highest unemployment rate since Stats SA in the first quarter of 2008 started measuring unemployment according to internationally prescribed methodology. To add further context, the official unemployment rate in the first quarter of 2021 (32.6%) is much higher than the 30.8% estimated by Stats SA in the third quarter of 2020, which is not so much affected by seasonal factors.

In addition, when discouraged workers who stopped searching for work – and who are classified as not economically active instead of unemployed in the official unemployment rate – are classified as unemployed, then the so-called expanded unemployment rate is much higher, namely 43.2%. Put differently, only 56.8% of the labour force has a job. This is extremely low in any standard.

Much has been said about the enormously high expanded unemployment rate of 74.7% of the youth aged 15 to 24 years. This is up from 73.8% in the fourth quarter of 2020, or 97 000 more unemployed compared to the fourth quarter of 2020. The increase was mainly caused by an increase of 96 000 new entrants into the labour market, while 1 000 who were employed lost their jobs, probably due to seasonal factors.

However, the unemployment rate in the 15 to 24-year age group is not a new problem. The unemployment rate was already high at 56.4% in the first quarter of 2008. The big trouble for this age group was caused by the global financial crisis of 2009, which increased the unemployment rate to 66%. It has never recovered ever since. It remained at these levels up to the third quarter of 2018, whereafter it surged to 70% within a year and then to the current 74.7%.

The unemployment rate for the other age groups declines steadily to a still very high 23.3% for the 55 to 64-year age group. These numbers, among other factors, show that employers prefer experience to newly graduated or matriculated entrants to the workforce. The numbers suggest that it was never easy for the youth to find a job. COVID-19, work from home and economic restrictions made this even more difficult.

Much more than the presidential youth programmes will be needed to alleviate the problem. One way is to introduce rapid economic reform implementation. These reforms have already been announced by the government, but now need to be implemented.

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