Neva Makgetla
13 April 2004
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Johannesburg — FINDINGS from the September 2003 labour force survey underscore the structural roots of joblessness. Despite some employment growth, using the expanded definition of unemployment (which counts people who want paid employment but are not looking for it), the jobless rate stayed unchanged at 42%. This is extraordinarily high by international standards.
In recent years the labour force surveys have found consistently expanding formal employment, although average wages have fallen. By contrast, figures for informal jobs fluctuate unbelievably, suggesting technical problems with the survey itself.
In any case, although very welcome, the growth in employment remains far too small to achieve the growth and development summit target of halving unemployment by 2014. At current rates of job creation, the economy would have to grow well above 10% a year to generate enough formal jobs to reach the goal.
This finding points to the structural challenge facing job creation. Since the 1980s, most growth has been in fairly capital-intensive sectors, which create few jobs despite high investments.
According to Tips (Trade and Industrial Policy Strategies) EasyData, in 19942002, growth of light industry and agriculture was notably slower than that of heavy chemicals and minerals.
Sectors growing more than 5% a year averaged R500000 investment per job, four times as much as those that grew under 3% a year.
It is fairly easy to model the effect on employment of this shift towards capitalintensive production. For instance, suppose that in 1994-2002, the economy had retained its 1994 production structure but stayed at the actual growth rate. In that case, formal employment would be about 7% higher today.
Similarly, if we pushed output growth up to 5% a year until 2014, but only light industry and services grew, SA would create an additional 1-million jobs than if the country's economy grew 5% with the current bias towards capital-intensive sectors.
The question, of course, is why capital-intensive sectors have grown faster than others, especially given falling capital productivity. The basic answer is that the strong inertia of the growth trajectory established long before 1994 remains.
To grasp this inertia, we have to leave behind simple economics models, where investors make decisions based solely on prices. In the real world, experience, biases and preconceptions shape investment choices and economic structure.
Specifically, for decades the SA economy centred on minerals and mining. Then, from the late 1970s, the government encouraged coal-based heavy chemicals. Despite some government efforts to diversify into other areas, these economic structures continue to influence investment decisions.
With the decline in gold, the big mining firms have sought alternative mining and mineral opportunities in SA and abroad. The shift from gold to platinum and aluminium stabilised the share of minerals in output and exports but was associated with a hefty increase in capital intensity.
Meanwhile, the dominant sectors affect the state's economic project. In the words of economist Michael Schafer, the lead sectors in any economy tend to "capture" state agencies.
In SA, the economic ministries and parastatals historically served the minerals and heavy chemicals industries. After 1994, public sector reform tended to focus on extending basic services to the poor. At the Industrial Development Corporation (IDC), trade and industry department and other economics agencies, devising new mandates and the reorientation to them has been less systematic.
Despite some steps to aid small and medium enterprises and downstream output, there is still much state backing for hugely capital- and energy-intensive activities relating to minerals and petrochemicals, especially for export.
What can be done to shift investment and growth towards more job-creating activities? The growth summit proposed employment-orientated sector strategies. From this standpoint, the muchheralded public works programmes provide a short-run fix, while the sectoral approach ensures sustainable privatesector jobs in the longer term.
The sector strategies need to be consistently backed up by skills development, trade policy and the allocation of infrastructure, as well as IDC support.
However, the shift to light industry and services will require changes in longstanding systems and structures. In turn, that means big companies and government, in particular, must do more to help sector strategies identify viable projects able to create formal jobs on a large scale.
While this is certainly not an easy task, it is the only hope for a sustainable and growing economy in the longer run.
Makgetla is a Congress of South African Trade Unions economist.
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