The True Face of Unemployment

Unemployment has historically been a challenge for South Africa and has remained at persistently high levels over the past 2 decades. Newly sworn in President, Cyril Ramaphosa has stated that job creation (with an emphasis on youth employment opportunities) lies at the centre of government’s national agenda for 2018.

According to Statistics South Africa (Stats SA) the unemployment rate of youths aged 15-24 years old is 51.1% and the unemployment rate of youths 25-34 years old is 33.4%. These figures illustrate the challenges that youths face when looking for employment in South Africa.

The most recent national unemployment figure is 26.7% in Q4 2017, seemingly down from 27.7% in Q3 2017. On the surface, this sounds like true progress is being made in the fight against unemployment. Unfortunately, the details contained within Stats SA’s Quarterly Labour Force Survey (QLFS) indicate that the decrease in the unemployment rate is not akin to an increase in the number employed. Table 1 contains a comparison of the Q3 2017 and Q4 2017 QLFS data.

Table 1: Q3 and Q4 2017 Employment Statistics

The unemployment rate is calculated as follows:

Unemployment Rate = Unemployed / Labour Force

The unemployment rate (strict definition) only includes individuals that have looked for work in the last four weeks. If an individual has not looked for work in the last four weeks they are removed from the labour force (or in other words they are considered not economically active). The effect of individuals being removed from the labour force is that the base (denominator) of the unemployment equation becomes smaller relative to the number of people that are unemployed (the numerator).

The labour force decreased from 22 402 000 people in Q3 2017 to 22 051 000 people in Q4 2017 (a 1.6% or 351 000 decrease). Conversely, the population of working age increased during this period. Since Q3 2017 South Africa has lost 21 000 jobs (employment decreased by 21 000) and the number of unemployed people has declined by 330 000. A decline of 330 000 people in the number of unemployed sounds promising, however, this statistic is accompanied by 503 000 people who have join the ranks of those that are not economically active. 103 000 of those individuals have become discouraged (would accept a job if offered to them but have given up actively seeking work) and 400 000 of those have exited the economically active population for other reasons (cumulatively 503 000).

The net effect of these figures is that employment and the number of people that are economically active have declined. The reason for the decline in the number of unemployed is not because they have found employment but rather because they have exited the labour force (As evidenced by the number of employed people declining by 21 000 compared to Q3 2017). This suggests that individuals are viewing the labour market with increased pessimism as some of the labour force has stopped looking for work as they perceive that they have a low chance of finding employment. The labour force participation rate (Labour Force / Population of working age) has decreased from 59.9% in Q3 2017 to 58.8% in Q4 2017. 351 000 individuals exited the labour force while the population of working age increased by 152 000 people. This further illustrates that individuals are feeling increasingly pessimistic about the labour market.

In recent times, South Africa has enjoyed improved sentiment from investors on the back of increasingly positive economic and political information. The decline of the unemployment rate can easily be included in this wave of good news which has reached our shores but to do so would be naïve. Although the majority of the changes in the data discussed would have been set in motion before the recent wave of good news, the data tells a story of a pessimistic South African labour force – not pessimistic in the sense that people do not want to work, but rather pessimistic in that people are viewing their chances of finding work as lower than before. This pessimism has seen more than half a million people join the ranks of the not economically active population while the population of working age has grown by 152 000 during the same period of time. This means that there is a net increase of 351 000 people who are not trying to even find a job compared to the previous quarter. This is a significant change in the quarter on quarter data and further highlights how important it is for President Ramaphosa to make good on his promise of addressing job creation in South Africa.

 Conclusion

Now more than ever, South Africa requires strong leadership to boost the morale of the labour force and encourage those that have exited the labour force to re-join it. If this is to transpire, a pre-requisite would be creating additional jobs for employees to pursue.

Written by:

Bryden Morton
Executive Director
B.Com (Hons) Economics
[email protected]

Chris Blair
CEO
B.Sc Chem. Eng., MBA (Leadership & Sustainability)
[email protected]