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Employment Trends
From FNB - Dr. Cees Bruggemans
4 October 2006
Official employment data jumps around a lot. Although the economy is hardly a smooth-functioning machine, with many little ups and down, interruptions and accelerations, there is certainly a broad advance taking place of late.
This must be a new experience for many South Africans. The last non-stop advance started after WW2 and lasted until the late 1980s. Throughout that forty year period, employment was expanding, though a good deal slower by the late 1980s than in the halcyon 1960s.
The Great Interruption had its start in the early 1970s when average GDP growth started slowing. Abrupt job declines started in gold mining in the mid-1980s, followed shortly thereafter in (some) overmanned parastatals. The overall formal employment peak was reached about 1990.
Thereafter, a formal sector employment decline set in which reached a low by 1996-1998, after which the worst job shrinkage was behind us. The rate of job destruction slowed down while new job creation gradually speeded up. The real take-off in new net formal job additions can be traced to 2003, as GDP growth stepped up to 4.5% plus and formal employment started to make big additions, with job destruction dwindling.
Informal employment had its start in the 1970s, as the tax burden exploded and some people decided to go underground, but really came into its own in the 1980s when economic slowdown increased necessity to find an income for a still rapidly expanding (urban) population and in the 1990s as the formal sector sought to actively redeploy the labour force. Also, large inflows of newcomers from the rural hinterland (and elsewhere in Africa) into established urban areas and the creation of new settlements became the push-factor in the 1980s and 1990s as the unemployed sought any means of income.
Although the informal sector has kept expanding through today, its recent growth has been much less impressive than in the explosive 1980s and 1990s. This is yet to be explained adequately, unless it is a matter of many low-income South Africans preferring to keep their privacy in matters economic and financial, especially with an extensive social grant system in place today, and qualifying criteria a sensitive matter between citizens and their government. Sometimes one tells parents only so much what they think they need to know, but not more.
Last week Stats South Africa released its Labour Force Survey (LFS) for March 2006. Although obviously already six months dated, the trends in the economy through to March can easily be extrapolated through today and to yearend 2006.
It is perhaps advisable to ignore the results from the very first LBS in March 2001 due to some dubious data (the retail and wholesale trades nearly losing a quarter of their workforce subsequently) as well as the results for March 2002 (too much volatility in agricultural employment). But thereafter the three years through March 2006 give a comprehensive picture of acceleration in formal employment creation, and steady gains in informal employment, with belatedly the first broad indication of unemployment peaking and now declining.
Total employment, including formal, informal and agricultural employment, was estimated at 11.3 million in early 2003, rising by nearly 1.2 million to 12.5 million in early 2006. By yearend 2006, this should already have increased to 12.9 million.
The 2003 gain was still minimal (only 100 000 jobs), but in 2004 and 2005 the annual jumps increased to 500 000 plus. We are talking 5% gains in employment levels in both the latter years, during which the economy supposedly grew its output by an average of 4.5% (and household spending by 7%). We need more information to fully understand how the growth picture relates back to these estimated employment gains.
THE FORMAL SECTOR
The formal sector of the economy is generating some 90% of GDP, with the remainder forthcoming from the informal sector. It is therefore crucial to understand better what is going on in the formal sector (where jobs typical earn three times or more than an average informal job, with the benefit of more enhanced skill levels and access to capital goods).
When excluding agriculture (for too much of it is low-income subsistence activity and deflects from the GDP picture), the following presents itself for the three years stretching from March 2003 to March 2006:
- formal employment increased by 830 000 or 12% from 7.2 million in March 2003 to 8.1 million in March 2006, with annual gains of 300 000 in the last two years. These are growth rates of 3.7% and either hint at poor productivity improvement (the immediate conclusion, given so many new and inexperienced people joining the economy, with a lot of mistakes being made and inefficiency noticeable), or some GDP growth understatement (employers are demanding their pound of flesh and are expanding their fixed investment at 9% annually).
- By yearend 2006, formal employment should already be standing at 8.3 million (some 1.7 million above its 6.6 million mid-1990s low and 1.3 million above its 7 million turning point in 1990. Let it not be said there hasn?t been progress these past 16 years.
THE INFORMAL SECTOR
With estimated agricultural employment stable at 1.3 million during this three-year period, other informal employment increased minimally, from 2.8 million (30% of which domestics) to 3.1 million.
The informal employment gains of 300 000 net new jobs during 2003-2006 were extremely unevenly achieved, and unimpressive, given the much larger 900 000 formal sector gains, a lively growing economy and rapidly expanding urban environments.
Domestics didn?t gain at all (stuck at an average 850 000 jobs annually throughout), which may have some of its explanation in increased labour law activity and minimum earnings. Even so, the number of middle class households has increased greatly, while the effects of divorce and other social trends keeps on fragmenting households steadily and increasing their numbers and abodes.
Putting it differently, some 600 000 new houses have been added to the modern housing stock since 1994, yet domestics don?t seem to have benefited from this, at least not statistically.
Even so, the 300 000 three-year gain on a base of 2.8 million informal jobs suggests an 11% increase, closely in line with the 900 000 or 12% increase in formal jobs over that period. With informal work opportunities presumably created more easily (fewer regulations, skill requirements), there may be an undercount of the extent of informal employment, possibly even significantly so.
By yearend 2006, surveyed informal jobs probably were already some 3.2 million.
Total formal and informal jobs (excluding agriculture) would have amounted to 11.5 million by yearend 2006.
CHANGES IN FORMAL EMPLOYMENT
Some of the formal jobs data, when taken from March 2001 to March 2006, have a believable ring to them.
Mining dropped from 560 000 to 400 000. Big gainers were:
- manufacturing from 1.3 to 1.5 million
- retail/wholesale trade from 1.4 to 1.9 million
- financial and other services from 0.9 to 1.1 million
- (government) services from 1.7 to 2 million
- Construction from 350 000 to 450 000
Transport dropped from 425 000 to 415 000, but huge gains in private road transport may have been matched with further reductions at Transnet.
Perhaps also interesting are some of the changes in occupation in a growing economy. Ignoring the earlier years for statistical reasons, the March 2003-2006 period do offer some interesting advances, with formal and informal jobs lumped together:
- Managers (private & public) increased by 20% from 710 000 to 850 000 (and now at last as numerous as the country?s nannies).
- Professionals increased by 10% from 550 000 to some 600 000, but very unevenly (the entire gain taking place in the last year). Want to believe that? Or are we working existing professionals to death, and employers have finally relented to hire a few more this past year, being relatively underused before?
- Technical and associate professionals have barely increased by 4% or 40 000 to 1.2 million (and again the gain is concentrated in the last year). Want to believe that, too?
- Clerks have increased by 10% from 1.1 to 1.2 million, with this time the increase concentrated in 2003, and very little in 2004 and 2005. That would be good news if it reflected stagnating public employment and private sector productivity gains (thinking technology). But as service delivery could be a lot better, perhaps there?s room here for a couple of hundred thousand more clerks without trying? That is, if it would improve delivery.
- The sales force jumped by 270 000 or over 20% from 1.3 to 1.6 million and reasonably spaced. That sounds believable in an economy driven by ?sell, sell, sell like hell?, in line with managers.
- Skilled agricultural workers increased by 50% from 0.4 to 0.6 million. These were good years, were they? No? Possibly some reclassification then?
- Craft/trades increased by 300 000 or over 20% from 1.4 to 1.7 million, in line with management and sales, and not unreasonably spaced (kind of).
- Plant operators dropped by 100 000 from 1.2 to 1.1 million, presumably reflecting the march of technology (embedding more skill into machines) and our deindustralisation (as manufacturing/mining keep on losing share in GDP, surrendering to services).
- Elementary occupations increased by 180 000 or 7% from 2.5 to 2.7 million. This could reflect the effect of minimum wages and labour laws, but also the increased technology contribution and machinery.
With non-agricultural GDP during this three-year period expanding by 4.5% annually, giving a 14% gain overall, some of these numbers are surprising. For instance, the intensity with which managers, craft/trade and sales workers increased by over 20%, from a combined total of 3.4 million to 4.1 million. At a pinch that?s half the formal sector, so are we undercounting GDP growth, or have professionals been overpromoted to managers (the combined group shows a 16% gain, more in line with GDP).
It has been cutthroat out there, so fewer clerks and more sales forces, while technology took care of the remaining attrition. Sounds good, too.
A picture presents itself. Very Asian, in that GDP growth is mostly explained by increased use of labour and capital (and not so much productivity, a Paul Krugman story, emphasizing perspiration rather than inspiration). Still very African, too (in achieving half the Asian growth average, and that in three exceptionally good years half explained by external windfalls doing most of the driving).
As to overall believability, these numbers by and large look interesting. That in March 2006 one survey (LFS) shows formal employment of 8.1 million and another (QES) shows 7.2 million, a mere matter of 10% discrepancy, shouldn?t kill the fun. It should offer inducement, however, if any where needed, to further improve the survey activities.
UNEMPLOYMENT
As to unemployment, we have those officially classified as unemployed (trying but not succeeding in finding work) and the discouraged (unemployed and basically given up hope of finding work, but available if something were to turn up).
The numbers are interesting. Have we peaked?
The officially unemployed rose from 4.4 million in March 2001 to a peak of 5.1 million in March 2003, after which a decline set in, reaching 4.3 million by March 2006.
In contrast, the discouraged rose from an estimated 2.7 million in March 2001 to 3.8 million in March 2005, thereafter declining to 3.7 million in March 2006.
An additional interesting bit of information is that 50% of the discouraged are in their twenties. It suggest a transition stage, with many over time probably acquiring some skill and becoming absorbed into informal jobs, or even formal employment for the most successful.
When we add the unemployed and the discouraged to get an overall unemployment sense, we move as follows:
* March 2001 7.1 million
* March 2002 7.9 million
* March 2003 8.35 million
* March 2004 8.2 million
* March 2005 8.1 million
* March 2006 7.95 million
According to these LFS estimates, overall unemployment peaked at over 8.3 million in 2003 and has since been falling by 150 000 annually, potentially falling below 7.9 million by yearend 2006 (down 400 000 from its 2003 peak). Is that progress or what?
On the other side of the medal, overall modern employment (formal and informal jobs, excluding agriculture) increased from 10 million in March 2003 to 11.5 million by yearend 2006, a gain of 1.5 million or 15%. That?s progress, too.
Interestingly, too, all this peaking took place roughly at the time of my first book launch in mid-2003, foreshadowing just such a progression (though our windfalls since then have accelerated the pace somewhat).
The main reason why there have been good employment gains after years of labour force rationalization is obviously because the labour force is now better deployed, necessitating so much less rationalization than in the transition period since 1987. And the economy is of course growing so much faster of late.
As to why unemployment overall is dropping, that is still mostly due to population and labour force growth steadily falling off for a myriad of reasons, such as increased urbanization, industrialization, higher education levels and higher income levels (the traditional levers in the demographic transition to lower fertility rates). The other major explanation is the HIV/Aids pandemic still raging in our midst.
Original articles published at www.fnb.co.za.
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