Higher pay only good for those earning
Stats SA’s recent labour force survey of about 30,000 households confirmed the woeful state of the labour market. In the third quarter, the supply of potential workers increased by 153,000, or 0.4% — much faster than demand for labour, which increased by 92,000 to 16.4-million.
The numbers defined as unemployed, not working but actively looking for work, increased by 127,000 to 6.2-million, pushing the unemployment rate to 27.5% of the potential workforce.
While the formal sector continued to shed jobs, the informal sector was adding them rapidly. In the third quarter, informal employment outside agriculture rose by 188,000 and by 327,000, or 12.2%, over the past year to more than 3-million workers employed informally, or more than 18% of all those estimated to be employed.
The decline in formal employment and increase in informal employment is not a coincidence. Formal employment has been subject to an incoming tide of increased intervention by the government and trade unions since the mid1990s. These have provided those in jobs with consistently improved wages and other valuable employment benefits. The informal-sector employers and workers largely escape these constraints.
If formal employment — decent jobs, as they are described — is unattainable, the choice for many is reduced to informal employment, or not working, or earning much less.
It should be appreciated that while formal employment outside the public sector has stagnated, the share of employment costs in total value added by private business has increased. Compared, that is, to the share of operating surpluses generated to cover other costs, including the costs of capital employed, which has declined with slow output growth.
The bill for employment benefits in real terms has even risen as the numbers employed have dropped.
Decent jobs for those who keep them is the objective, an intended consequence — there has been an observable sacrifice of employment.
Unemployment in SA is not an accident. It is the predictable effect of preventing hirers and suppliers of labour from coming to mutually acceptable terms.
The jobs summit would have been better described as a “decent-jobs summit”, and the heralded landmark framework an agreement of all and everything that can be imagined to promote the demand for labour — but without any recognition that the price of hiring labour and the conditions imposed on its hire may have something to do with the demand for and supply of workers.
Far too few South Africans now have the skills, qualifications, training and experience of work to allow them to be employed on favourable terms.
The soon-to-be-imposed national minimum wage of R3,500 per month, or R20 an hour, will make it even more difficult to find employment, because these minimums are well above what many currently earn.
Few of the very poorest in SA, the pretended beneficiaries, are actually employed.
It has been convenient for those who wish wages were higher to ignore the findings of the one comprehensive and highly relevant study of the employment-destroying effects
— and wage-enhancing effects for those still employed — of setting employment benefits well above prevailing levels.
The findings of Haroon Bhorat and colleagues are presumed not to be representative but, in reality, could not be more relevant.
They studied the effect of higher minimum wages on employment in agriculture after they were introduced in 2003. There was a 20% reduction in employment and muchimproved wage benefits for those lucky enough to retain their jobs.
There is every reason to expect the national minimum wage will have a similar effect on employment.
The informal sector will once again have to come to the rescue of the unemployed while they wait, impatiently, for economic miracles.
● Kantor is chief economist and strategist at Investec Wealth & Investment. He writes in his personal capacity.