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Committee reports of the Taylor Committee into a social security system for South Africa.

Committee Report No 5: Social Protection: Employment and Unemployment
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Table of contents

5.1. Introduction
  5.1.1. An overview of the problem
5.2. Employment and unemployment: The current situation
  5.2.1. Poverty and unemployment in South Africa: recent trends
  5.2.2. The potentially employable, and the ‘difficult to place’
  5.2.3. Youth unemployment
  5.2.4. Graduate (and diplomat) unemployment
  5.2.5. Lack of skills or qualifications vs. inability to find ‘suitable work’
5.3. Social grants and vulnerable households
  5.3.1. Conditions in workerless households
  5.3.2. Social grants and workerless households
  5.3.3. Employment in the informal economy
  5.3.4. A profile of informal worker households
  5.3.5. Social grants: there is no alternative
5.4. Social insurance
  5.4.1. Issues in unemployment insurance cover
5.5. Active labour market policy and workfare
  5.5.1. Workfare in South Africa?
  5.5.2. Linking active labour market policies and social security
  5.5.3. Active labour market policy: special areas for research?
5.6. Recommendations
  5.6.1. On the appropriate form of social security
  5.6.2. Social Insurance: The Unemployment Insurance Fund (UIF)
  5.6.3. Social assistance
  5.6.4. Active labour market and job creation policies
  5.6.5. Institutional arrangements
  5.6.6. Policy evaluation
5.7. Conclusion
 
  REFERENCES - 23Kb < 1min (3 pages)
  ENDNOTES - 30Kb < 1min (4 pages)
  APPENDICES - 21Kb < 1min (3 pages)
 


5.1 Introduction


This chapter is intended to inform policy to address the hardships caused by unemployment and very low-income employment. The sufferings caused by unemployment, along with the social devastation wrought by poverty and chronic illnesses such as AIDS, constitute South Africa’s most pressing social security concerns. Not far behind them, however, is the misery of the poverty associated with low-wage, precarious employment, like much of that in the informal sector. Those among the unemployed who are destitute must be a priority as well as the working poor.

Specifically the chapter aims to:
  • Present, using the most recently available information, a picture of the unemployed in South Africa.
  • Show the extent, using this information, to which government programmes to foster employment creation fall short of what is required to address the unemployment problem.
  • Identify, tentatively, the approximate numbers who could be ‘reached’ by active labour market policies, including supply-side measures such as skills training of one sort or another.
  • Identify, tentatively, the ‘difficult-to-place’ among the unemployed.
  • Spell out the dimensions of the ‘youth’ and the ‘graduate’ unemployment problems.
  • Raise the question of refining measures of the severity of unemployment by pointing to the need for research into the question of unemployment due to lack of skills as opposed to a shortage of ‘suitable’ jobs.
  • Reveal the extent of poverty in households containing adults of working age, in which there are no employed persons present (workerless households).
  • Examine the nature of employment in the informal sector./li>
  • Consider the extent of poverty in households containing informal sector workers.
  • Consider the extent to which the welfare of vulnerable households could be improved by various social grants.
  • Estimate the extent to which ‘informal social security’ arrangements are capable of addressing the problems faced by workerless households.
  • Consider various aspects of the provision of social insurance, amongst them, maternity benefits, and the possibility of the incorporation of variously currently excluded groups such as domestic and government workers.
  • Locate the concept of ‘workfare’ in the context within which it has emerged.
  • Examine alternatives such as ‘workfare’ or public works programmes to address the problem of unemployment in South Africa.
  • Consider the feasibility in South Africa (i.e., spell out the structural preconditions for), of linking preventive social measures (active labour market policies) to the conventional measures of social insurance and assistance.
  • Consider various groups whom it may be desirable to single out for special labour market programmes, e.g., the youth.
  • Offer recommendations on the various fields of inquiry.
  • Spell out the required forms of social security policy for dealing with the unemployment problem, viz., social insurance, social assistance, public work programmes and preventive social security measures such as active labour market policies,


5.1.1 An overview of the problem


Chapter 2 on the Socio-economic Context for Social Protection offers a broad brush survey of the reasons why so many South Africans find themselves either unemployed, or working in occupations that provide little more than survivalist incomes. Ultimately, the welfare of most of the poor will only be significantly improved by their insertion into a labour market that delivers ‘good’ jobs. How this is to be achieved in South Africa is a question that poses continuing challenges.

Unfortunately, job-creating growth remains elusive—instead, unemployment continues to rise as shown in section 5.2 of this chapter. Formal sector employment is either static, shrinking slowly or growing slowly (it is not possible to tell which). Informal employment is probably growing, but from the estimates it is difficult to tell what is happening. Policy must concern itself with bringing about the conditions in which rapid job growth takes place. At the same time, however, relief has to be provided for those who, in the words of the Bill of Rights, ‘are unable to provide for themselves and their dependants’.

Government’s macro policy framework (GEAR) recognises that economic growth and employment have to be supported by measures to address poverty. Furthermore the need for an effective social protection system was reinforced with the recommendation that poverty alleviation could not be addressed solely through the provision of a safety net. A variety of measures to stimulate job creation, direct and indirect, (including measures to improve workforce skills and employability) were introduced, or where they were already existing, improvements were recommended.

Government’s focus, however, was and remains on job creation as the primary means of rescuing the poor and the unemployed from their destitution. For a variety of reasons, some of them complex and not adequately researched or understood, this strategy has resulted thus far in only limited success.

As early as August 1998, it was known that the number of unemployed started rising in 1995, increasing by 1,2 million in just two years. In July 2000, the October Household Survey (OHS) revealed that the number of unemployed had risen from 4,6 million in 1996 to 5,9 million in 1999. The latest figures from the Labour Force Survey (LFS), although not strictly comparable, suggest that there may have been about 6,7 million unemployed by February 2001. Analysis by the Committee indicates that by mid-1999 reasonably reliable data, on which to chart the impact of economic policy, poverty and unemployment was available.

Despite Gear’s success in achieving its goals of stabilisation of the macro-economy, rising unemployment as a result of a combination of factors has had a predictable effect on the millions not covered by social security. Among these factors, the impacts of economic globalisation on the South African economy also have to be considered.

International evidence, supported by World Bank1 studies, suggests that the ameliorating effects of labour market policies on inequality associated with globalisation is negligible. The studies find, however that, “social protection mechanisms could be an important complement for policies aimed at further integrating developing countries with the rest of the world”.2

The Committee’s review of government-sponsored programmes to alleviate poverty through job creation and other strategies reveal mixed outcomes. Exactly how many new jobs have been created under the auspices of the poverty alleviation programmes (sustainable or otherwise) is difficult to say—the total numbers vary between 200 000 to 300 000. An overriding finding has been the inability to cope with the sheer mass of people requiring assistance through waged work and other forms of income support.

Policy to deal with unemployment (which spills over into policy to deal with the working poor) takes three standard formsѕsocial insurance, social assistance and ‘preventive social policy’ (otherwise known as active labour market policy). There are two other areas in which policy recommendations are apposite. The first of these is concerned with the instruments to measure the success (or otherwise) of social protection policy. Related to this is a need to develop instruments and techniques (and to improve these where they already exist) for policy and programme evaluation on a continuous basis. Moreover instruments must be able to measure the severity of unemployment and not only the numbers of unemployed. These instruments have to be developed as a priority in South Africa. The field is large, ranging from the quality of statistics collected by the various departments and institutions concerned with social policy, to the ‘official statistics’ compiled chiefly by Statistics South Africa, and to a lesser extent by the South African Reserve Bank.

Government’s current policy to address the problem of poverty and inequality has to be distilled out of a wide range of public statements as well as reports. An example is that of former Minister of Welfare and Population Development, Ms Geraldine Fraser-Moleketi, giving government’s response to report called Poverty and Inequality in South Africa (PIRSA)3 .Government’s response to the PIRSA notes that the report is strong on poverty and weak on inequality (pp.1-2). In this regard, it was noted that:
    … much work still needs to be done to develop the appropriate poverty measurement tools by Government. (p.2)
It was also critical of PIRSA’s failure to reflect government’s many achievements. The third criticism was of PIRSA’s failure to provide a strategic vision4 . A little further on it was observed that:5
    It is conceded in the concluding paragraphs of the chapter [in the PIRSA] that an employment strategy is indeed not developed. In the view of government this is a serious omission—at the very least the PIR should have provided a framework for developing the most viable strategy for the country at this point in time.
The Committee of Inquiry into Comprehensive Social Security takes a two-pronged approach to the relationship between social security and labour market and employment policy.

First, comprehensive social security has the potential to provide an income support mechanism for all South Africans, including those disenfranchised from the labour market. This functions to mitigate the most adverse consequences of unemployment. Second, comprehensive social security supports a developmental approach to labour market reform. Protecting workers from destitution is a proactive first step in addressing the intractable problem of structural unemployment. A guaranteed social protection system frees workers to invest in high return human capital and job search, and poverty reduction has a positive impact on job creation.

Comprehensive social protection improves the distribution of income and directly addresses the poverty that traps6 the economy from growth. This developmental approach is consistent with the growth strategy articulated in the government’s Medium Term Expenditure Framework, which states:

A more equal distribution of wealth favours higher rates of growth. Improved levels of human development, therefore, are a central link in a virtuous growth cycle, in which higher savings, stronger demand for education, strengthened social capital, greater political and economic stability and growth in output are all mutually reinforcing.7

Likewise, the joint Department of Labour/Department of Education human resource strategy recognises that poverty and inequality limit “the ability of individuals, households and the government to finance the enhancement of skills, education and training that are critical prerequisites for improved participation in the labour market, and therefore, improved income.”8

The Committee’s position on the question of the relationship between social security and labour market and employment policy is given in the box below.

Social security, labour market and employment policy

In the early stages of its work, the unemployment sub-committee of the Committee of Inquiry into Comprehensive Social Security envisaged a close integration of active labour market policies and social security policies, as conventionally understood. This view developed from a consideration of the form taken by social protection in advanced economies. As research proceeded, it became increasingly obvious that policy transplantation along these lines would be inappropriate—the structural pre-conditions for its success are not met in South Africa. For this reason, the Committee has engaged with those aspects of labour market and employment policy that strongly relate to poverty and social exclusion. The Committee’s research shows that income security or income poverty for the millions is unlikely to be addressed, in the immediate to medium term, through employment. The vital importance of labour and employment areas of policy is acknowledged, as is the existence of a variety of institutions for developing and implementing policy. Further co-ordination of welfare and employment policies is necessary. This must, however, be achieved by strengthening the institutions of co-operation at all levels from Cabinet down, not by shifting responsibility for parts of employment policy to the Department of Social Development.

Poverty in South Africa is critically linked to the labour market. Research carried out for the Committee documents that in 1999 there were 4,6 million South Africans in the poorest households (living in households where gross monthly expenditure was less than R400 per month). A further 5,7 million people lived in households where expenditure was between R400-R800 per month. Average monthly per capita consumption expenditure in the poorest households was therefore, at best, in the region of about R100 per month. In the next expenditure class (R400-R800) per capita expenditure could not have been more than R170 per month. Even the most conservative poverty datum line in that period was set at between R300–R400 per month per capita. All 10,3 million people discussed above lived in households that contained no workers, either formal or informal. Labour market failure was thus a key determinant of their poverty.

Households with access to formal sector employment demonstrated substantial inequality—more than a third subsisted on less than R800 per month, while 15 per cent consumed more than R5 000 per month.9 Numerous academic studies corroborate, support and amplify these findings linking poverty and inequality to the labour market. For instance, in a recent study by Leibbrandt and Woolard found that “household income inequality is tightly linked to labour market access … wage income is the primary cause of income inequality, but at least half of this ‘wage inequality’ is actually attributable to those households with no wage income … Evidence suggests that inequality is rising and households at the lower end of the distribution are losing income share”.10

Footnotes:

  1. Coudouel A, Ezemenari K, Grosh M, and Sherburne-Benz L, in the chapter on Social Protection, World Bank Poverty reduction Sourcebook, 2001 World Bank, Washington.
  2. Rama, M 2001:23, Globalisation, Inequality and Labour Market Policies, presented at the DPRU/FES Conference, November 2001, Johannesburg.
  3. The report was prepared for the Office of the Executive Deputy President and the Inter-Ministerial Committee for Poverty and Inequality in 1998.
  4. This was said to be: “… particularly evident in what is probably the most pressing challenge facing us, namely employment creation.” (p.2)
  5. In summary, the report is not strong on how to tackle the unemployment crisis. This may be the responsibility of specific departments, and particularly the Department of Labour in the run-up to the Job Summit, but a concise set of pointers should have emerged from the report itself.” (pp.4-5)
  6. The Committee uses poverty trap to mean a structural condition from which people cannot rescue themselves despite their best efforts. A welfare trap by contrast refers to the barrier created by means tested social grants that have in built perverse incentives.
  7. National Treasury, “Medium Term Budget Policy Statement 2000”, chapter 2, page 16.
  8. Human Resource Development Strategy for South Africa (2001).
  9. About half of South Africa’s population (21, 5 million people) lived in households with total spending of less than R800 per month, of which 15, 2 million people lived in households with no access to formal sector employment, and 10, 3 million in households with no one employed at all. (Calculations in Samson et. al. 2001b, based on 1999 October Household Survey data).
  10. Leibbrandt, M and I. Woolard, 2001. “The Labour Market and Household Income Inequality in South Africa” forthcoming in The Journal of International Development. See also McGrath and Whiteford (1994), Leibbrandt and Woolard (2000) and Whiteford and van Seventer (2000).

[Table of contents]



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