Monday, August 23, 2010

My Essay!

“Unemployment remains a crucial social and economic issue facing the South African labour market. Critically discuss the nature of unemployment in South Africa and possible solutions to address unemployment.”
Unemployment is a broad term and also a universal problem with which the political leadership of almost every country has to wrestle. Unemployment remains the most severe problem in the country of South Africa and is conceivably the core root and cause of many other social and economic issues such as crime, HIV/Aids, violence and downturns in the business cycle. It is a colossal waste of human potential and national product, it’s also responsible for poverty and inequality, it erodes human capital and it creates tension wherever it strikes. For many, “robbing the rich” has their only option in terms of survival. In this essay, i will be discussing about the profile of the South African labour market, the key challenges that are facing the supply of labour and the demand for labour, the nature of unemployment in South Africa, the measurement of unemployment, the reasons or causes for unemployment, i will also focus on the structural unemployment and then i’ll finally discuss the possible policies that alleviate unemployment in South Africa.
Definition of Unemployment
Barker, F (2007: 174) defines the unemployed person as the one who is without work, is currently available for work, and is seeking or wanting to work. The unemployment rate is defined as the number of unemployed persons taken as a percentage of the economically active population, which includes both the employed and the unemployed.
In addition to the definition above, it highlights a labour market, which is an imaginary market place where labour is bought and sold (Barker, 2007:2). The labour market consists of two main and important functions; the first one is that they allocate human resources among alternative users, i.e. among sectors, enterprises, locations and occupations (Barker, 2007:2). Then the second one is that they distribute incomes, either wages or salaries, as incentives and as rewards to workers (International Labour Organisation (IOL) 1993:7 ed. Barker, 2007:3). Looking at the South African labour market, poverty is primarily, though not exclusively, a rural phenomenon: for instance, less than 20% of households in rural areas have water, electricity or waterborne sewerage in the house (Barker, 2007:5).
The income inequality has been extensive, but over the past two decades interracial inequality has diminished (particularly between blacks and whites), while inter-racial inequality has increased (Barker, 2007:5). This has been due, firstly, to increased unemployment among the black population in particular, and secondly, to the high upward mobility of many Africans into senior positions in the public and private sectors (Barker, 2007:5). The unemployment, particularly among the black population and among females, created some issues in the labour market. Apart from unemployment being a major problem for the country and the individual concerned, it is also a major contributing factor to two of the country’s other major labour market problems: “inequality and poverty” (Barker, 2007:5). The high labour costs and low productivity, combined with the general absence of inherent pressures to increase the level and quality of output (Barker, 2007:5). The declining labour intensity of economic growth is particularly disconcerting, because far fewer job opportunities than in the past are now being created for every percentage point of economic growth (Barker, 2007:5).
The Nature of Unemployment
South Africa’s official unemployment rate edged lower in the fourth quarter of 2009, halting the massive job losses that had accompanied the first recession in nearly two decades (WEB). Statistics South Africa indicated that unemployment fell to 24.3% from 24.5% in the third quarter, with the economy creating 89,000 new jobs during the final three months of last year (WEB). Africa’s biggest economy registered positive annualised growth in the third quarter of last year, exiting its first recession since 1992. After three consecutive quarters of contraction in which hundreds of thousands of jobs were slashed (WEB). The ‘uptick’ in the fourth quarter left job losses for the year at 870,000 and Stats S.A. officials warned that most of the jobs created were in the informal sector, pointing to still-tough conditions in formal industries (WEB).
The expanded definition of unemployment, which includes people who have stopped looking for work, fell slightly to 34.2% from 34.4%. After three consecutive quarters of massive job losses, 4th quarter of 2009 showed a possible end to the deterioration in the labour market rather recovery (WEB: Stats S.A.). Jobs created, were mostly in the informal sector and unskilled worked. The total number of unemployed people stood at 4.165 million in the three months to December, while the number of the employed people increased by 89,000 to 12,974 million (WEB: Stats S.A).
The Supply of Labour
An individual can decide to work or not to work, or can decide to work more hours or enjoy more leisure hours (Barker, 2007:8). This is the basis of the supply of labour, which Barker. F highlights as being:
“All those people who are working, whether for themselves or for someone else, as well as those want to work and are looking for work, i.e. the unemployed people” (2007:9).
Certain factors influence these decisions that are mentioned above, for instance the personal preferences of the individual, the amount of money he or she needs, the wage rate. If all the decisions of individuals are added up, it gives the market supply of labour (Barker, 2007:8). It does not matter whether the persons are working or simply want to work; they are all part of the supply of labour (Barker, 2007:8). Furthermore, the type of work they do is also irrelevant, for instance whether they work in the informal sector or are an employer of other people. All these people form part of the labour force, or the supply of labour (Barker, 2007:8). The labour force and the supply of labour are then defined as being the population of age that is working or that wants to work (the unemployed) (Ruggunan, 2010 ed. Barker, 2007: 8). It is influenced by factors such as the proportion of the population that wants to work, the size of the population (as determined by, among other things, fertility and mortality rates) and net immigration. Also the changes in the economic environment, especially the wage rates and incomes, fall under the supply of labour (Barker, 2007:8).
Looking at the South African labour force, it shows that the participation of women has increased very sharply over the last number of years. This has probably been both the cause and the result of the rapidly declining fertility rates among all population groups, and the high levels of HIV/Aids (WEB). Whilst on the other hand, the participation of men has gradually declined over time, probably because of people retiring earlier (WEB). There is also a significant increase in emigration, which means that the country is losing skills (Barker, 2007:9). The South African labour force include demographics like race, sex, age, rural, urban, nationality, etc, which is the ultimate nature of unemployment in the country. For instance, a report showed that women have been found to be more resilient than men (WEB). The report showed that within the South African context, 56% of respondents said that women were very to extremely resilient and that only 44% reported men as very to extremely resilient (WEB). Another encouraging finding for the South African market was that 80% more companies were preparing more women for senior management roles than in the last five years (WEB).
Temkin added:
“By providing high-performing women with a variety of experiences, including training, mentoring and ‘stretch’ roles, to increase confidence to prepare them to succeed in senior leadership, leading organisations are ensuring a sustainable and motivated workforce for the future.’’ (Mail & Guardian online: 10 March 2010)
The reasons for such increment, is the rise in women’s wages as a result of reduced discrimination, the expansion of the services sector, also the increasing levels of education among women, the gradual decline in birth rates enable women to participate in the economy for longer periods (Ruggunan, 2010). Triple impacts of the age, skills, HIV/Aids and gender effect are likely to impact negatively on the composition of the labour force, as well as the range of skills, knowledge and experience available in the labour market (WEB). The labour supply is not only a matter of quantity but also quality (Barker, 2007:9).
The Demand for Labour
The demand for labour is a derived demand, which means that it is dependent on the consumer demand for the product produced by that labour or for the service provided by that labour (Barker, 2007:36). The demand for labour will thus be influenced by the price of labour (which impacts on the price of the product or services) and by increases or decreases in the demand for the product or service produced by the labour (Barker, 2007:36). It will also be influenced by other factors such as the market value of the product and by how much of the product is produced by the labour, i.e. how productive the specific worker is (Barker, 2007:36). The demand for labour in South Africa has not been sufficient to provide enough jobs for those wanting to work and has, except in a few years, not even been sufficient to create enough jobs for those entering the labour market for the first time (Barker, 2007:47). Over time, therefore, unemployment seems to have generally been increasing (Barker, 2007:47).
Some of the factors that influence the economic growth in South Africa are the rate and the nature of the economic growth, in which has been failing to create more jobs because of its low economic growth (Barker, 2007:47). The trade liberalisation has also contributed to the loss of unskilled jobs (Barker, 2007:46 ed. Nattrass 1998a), however it’s unlikely to have been the main cause of job losses overall (Barker, 2007:46). Also the impact of unions and bargaining councils on labour costs have increased high wages and also contributed to the reduction of demand for labour (Barker, 2007:46). Then the labour legislation that increases the indirect cost of labour or hinders productivity increases: The introduction of new labour laws has significantly increased the indirect cost of labour (Barker, 2007:48). The “Basic Conditions of Employment Act”, “Skills Development Act” and the “Employment Equity Act”, they all influence the increase in productivity (Barker, 2007:48).
Demand for labour has declined significantly over the past years; this was due to the low labour intensity production, slow economic growth (Ruggunan: 2010). Why is there a decline in the number of jobs? It’s because of the increase in capital intensive: 2 million jobs were lost over 20 years as a result of new technologies (Ruggunan: 2010). South Africa is shifting away from labour intensive production to capital production. We are more capital intensive than other middle income countries, like Brazil, Malaysia, Mexico and Korea (Ruggunan: 2010). The demand for labour in South Africa has increased both in the formal and the informal labour. In relation to the 2010 World Cup, various construction works has been happening, and that demanded for labour, especially in terms of building stadiums.
The Measurement of Unemployment
The unemployment rate is the number of unemployed persons taken as a percentage of the total labour force (the economically active population- EAP), which includes both the employed and the unemployed (Barker, 2007:174). There are also three broad approaches to measure unemployment:
The Sample Survey Method, this involves a survey that is undertaken among a number of households to determine the economic status of the members of the household, example being the Labour Force Survey- LFS (Barker, 2007:178). The Census Method is the second approach to measure unemployment that is based on the economic status of the whole population is determined by asking individuals what their economic status is (Barker, 2007:178). Then lastly comes the Registration Method, this includes the statistics on registered unemployment which was obtained from returns submitted on monthly basis by the different placement centres of the Department of Labour (Barker, 2007:184).
These returns reflect the numbers of people who have registered at the offices of the Department of Labour as unemployed (Barker, 2007:184).
There several types of unemployment, but i’ll be discussing the main one in South Africa which is the “structural unemployment”. This is due to the structural imbalances in the economy, or the way, in which the economy is organising, the country is unable to provide sufficient employment even when the economy is at its peak performance (Ruggunan, 2010). This type of unemployment is not sensitive to changes in aggregate demand. Hence, structural unemployment is the unemployment that exists when the economy is at full employment (Mafiri, 2002:10). Jobless growth appears to the norm in the increasing of unemployment in South Africa (Mafiri, 2002:18). This shows that the major part of the South African unemployment does not react that much to the cyclical changes in the level of economic activity (Mafiri, 2002:18).
However, this means that the major part of South African unemployment is of permanent nature. In other words, the largest part of unemployment in South Africa is structural unemployment (Mafiri, 2002:18). The existence of structural unemployment means that the employment opportunities brought about by the normal operations of the labour market are always less than the total labour force (Mafiri, 2002:19). Only a limited portion of the labour force is absorbed into the labour market. The rest of the labour force is excluded from the operation, influence and benefits of the labour market (Mafiri, 2002:19). The phenomenon of structural unemployment can be ascribed to structural rigidities, distortions and imperfections in markets and the way in which the general economy is organised (Mafiri, 2002:19). Structural unemployment arises from the nature, location and the pattern of employment opportunities. A major portion of unemployment is due to intrinsic mismatches between worker skills and the skill requirements of available jobs (Mafiri, 2002:19). The type of products that are chosen for production, the kind of inputs used and especially the way in which they are combined in production determine what kinds of, and how much labour can be employed (Mafiri, 2002:19).
Causes of Structural Unemployment
Being a complex phenomenon, the causes of structural unemployment covers a wide spectrum of factors. Some of these are common to all market economies; others are specific to South African economic and political order (Mafiri, 2002:19). The following is a list of possible causes: The labour market is not a single or a united market. It is in reality a segmented market, comprising of a number of relatively isolated sub-markets (Mafiri, 2002:20). Labour mobility between these market segments is limited. Employees who become redundant in one segment of the market will not necessarily find employment in another segment, even if there is a labour shortage in that segment, and even if the person is willing to work at a lower wage (Mafiri, 2002:20).
Democratic factors are also very important in South Africa. The rate of population growth causes the labour force to grow faster than the normal labour absorption of the market (Mafiri, 2002:20). Migration patterns in South Africa contribute to this problem, and hence also the population growth in neighbouring countries (Mafiri, 2002:20). Population growth has increased in momentum. Changes in the composition of the economically active population, e.g. the proportion that are young or very old, or the gender or racial composition, also contribute to the absorption problem (Mafiri, 2002:20). Changes in the age structure, as well as the participation rates, are particularly important in this regard (Mafiri, 2002:20).
The level of education, training, skill and experience of the labour force is also important (Mohr, 2000:281). Factors such as climate (in agriculture), and world commodity prices (geographic mismatch), such as the gold price (which has dramatically affected the mining sector), have played an important role in permanently depressing employment in certain segments of the economy (Mafiri, 2002:21).
The main causes of unemployment can include the rapid changes in technology, the recessions, inflation, disability, undulating business cycles, it can also be in terms of the attitude towards the employers (WEB: Economy Watch). The changes in tastes as well as alterations in the climatic conditions, this may in turn lead to a decline in demand for services as well as products (WEB). Also the willingness to work, perception of employees, employee values, even discriminating factors in the place of work (may include discrimination on the basis of age, class, ethnicity, colour and race), the ability to look for employment (WEB: Economy Watch).
The Solutions: Policy interventions
In most countries where unemployment is a major problem, it is products of several simultaneous causes, in which i have mentioned previously, each of them, interact with the rest: small wonder that unemployment policies are difficult to design. Furthermore, many policies that could improve economic efficiency are not politically implementable. The political realities dictate that it is not enough to find policies that give more jobs for those currently unemployed than they take away from those currently employed (Snower & De la Dehesa, 1997:1).
The following are the recommended government policies for alleviating unemployment problem in South Africa:
Growth, Employment And Redistribution Policy (GEAR)
One of the South Africa’ high unemployment is the relatively slow growth of the economy (National Economic Development and Labour Council, 2000: 44). In 1996 the government announced its Growth Employment and Redistribution policy which recognises higher economic growth and significant jobs creation as the key challenges of economic policy the fiscal deficits, while strengthening the redistributive effect of expenditure; a reduction on tariffs to contain input prices; the gradual relaxation of exchange controls; anti-inflationary monetary policy; tax incentives to stimulate new investment; Small and Medium-sized Enterprises development; restructuring of state assets (which among others include privatisation); expansionary infrastructural investment; a structured labour market flexibility within the collective bargaining system; an enhanced human resource development; and a social agreement to facilitate wage and price moderation (Barker, 2007:186). The government’s employment strategy specifically proposes measures to promote investment and exports, and others (RSA 1998: par. 3.5.11 ed Barker, 2007: 186).
Accelerated and Shared Growth Initiative of South Africa (ASGISA)
In 2005, the President announced that the ultimate objective of the Accelerated and Shared Growth Initiative of South Africa is to halve unemployment and poverty by 2014 (Barker, 2007: 187). It is not intended to cover all elements of a comprehensive development plan; rather it consists of a limited set of interventions to complement GEAR (RSA 2006- Barker, 2007: 187). This particular strategy, highlights the following binding constraints: the volatility and level of the currency; the cost, efficiency and capacity of national logistics systems; the shortage of suitably skilled labour amplified by the cost effects on labour of apartheid spatial patterns; barriers to entry, limits to competition and limited new investment opportunities; the regulatory environment and the burden on small and medium businesses; and the deficiencies in state organisation, capacity and leadership (Barker, 2007: 187). The response to the constraints is a combination of systematic initiatives, optimising on public expenditure, improving the environment to do business in South Africa and also removing bottle-necks (Barker, 2007: 187).
Joint Initiative for Priority Skills Acquisition (JIPSA)
This is a new structure that is led by a committee of relevant Ministers, business leaders, trade unionists and education and training providers or experts (Barker, 2007: 188). Its main job is to confirm the urgently needed skills find quick and effective solutions (Barker, 2007: 188). Its interventions focus more in the second economy, which intends to create sustainable bridges between first and second economies to enable growth and graduation to a sustainable economy (Barker, 2007: 188). This will done by focusing on growth cooperatives; unlocking the value of assets in poor people’s hands; small business; public works programmes, especially training; women in training; and also the youth (unemployed graduates), even the public administration issues and the macro-economic issues are dealt with in this form of policy (Barker, 2007: 188).
Public Works and Special Employment Programme
South Africa does not have a system of social security and therefore urgently requires a programme to assist unemployed persons who do not receive unemployment insurance (Barker, 2007: 194). According to the Reconstruction and Development Programme, the key in which special measures to create jobs can lead to building the economy and meeting basic needs is in redressing infrastructure disparities (Mafiri, 2002: 66 ed Barker, 2007: 195). The government’s strategy refers to the following: clean cities campaign (the delivery of waste services to poorly serviced areas); working for water (clearing invasive alien vegetation); land care campaign (rehabilitation and conservation of natural resources); municipal infrastructure programme (for low income areas); welfare programmes (which offer training, education and other opportunities for destitute); and community-based public works programmes (primarily in rural areas) (Barker, 2007: 195 & 196).
The Expanded Public Works Programme (EPWP), which deals with the upgrading, rehabilitation and maintenance of existing infrastructure delivery, can be used to remedy the situation by employing some of the employing some of the unemployed in construction projects (KZN Budget: 2010/2011). Under the EPWP, the work force will be given formal training, thus reducing poverty and increasing the skills base of the people (WEB). Part of the agenda of job creation is to ensure that public infrastructure is predominately implemented through the use of labour intensive methods (KZN Budget: 2010/2011).
In addition to what i have discussed in this essay, i will conclude by saying that unemployment is one of the most pressing economic and social problems facing South Africa today. The nature of unemployment has been a bumpy one over the past 2 years, due to the recession phase that our country was in. But fortunately, it was stabilised this year. It challenges both the demand and supply labour side. The social impact is particularly severe in the context of a fragile social safety net for the poor and a small underdeveloped informal sector. It is accepted that economic growth is an important contributor to addressing unemployment and poverty in this country. After looking at what’s causing unemployment, the government has adopted targets to 2014 and implemented certain policies in alleviating unemployment, which are namely the Growth, Employment And Redistribution (GEAR); the Accelerated and Shared Growth Initiative of South Africa (ASGISA); the Joint Initiative for Priority Skills Acquisition (JIPSA); and the Public Works Programme. Certainly, these actions could make a positive impact on job creation and economic growth.

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