Tim Cohen
9 November 2009
column
Johannesburg — IF THE recession is technically over, how come unemployment is still rising in the US? This is no abstract question, as SA's jobless rate spikes upwards.
The US numbers are startling. Unemployment is above 10% for the first time in a quarter of a century, and the highest since 1983. There are now 7,3-million jobless -- almost twice as many Americans out of work than there are South African jobs.
In proportional terms, SA's unemployment has risen to 23,5% of the working population, so even a 10% jobless rate here would be a fabulous achievement.
The ANC's official target of cutting unemployment to 14% by 2014 looks impossible now.
But the intriguing question is why unemployment rises even when an economy improves.
The lag between an economic upturn and employment increases demonstrates how expectations lag the facts on the ground both in upturns and downturns. Early last year, there was cautious optimism in SA and elsewhere in the emerging market world that the downturn might be avoided. The same tendency clearly works in the opposite direction in an upturn.
Fearing the upturn may be short-lived, a false bounce or some other calamity, many companies tend to err on the side of caution in decisions with long-term effects. Labour-market flexibility is a key factor. Countries with tight labour markets are particularly slow to respond to upturns.
Yet the US has one of the most flexible labour markets. Clearly, other factors are at work. Companies find they can get by on fewer staff. Downturns can drive efficiency as companies make the hard decisions on retrenchments they didn't in good times. They find ways to automate functions performed by people. This seems harsh, yet in the long term it can enhance economic productivity.
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