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CHAPTER 2
The international economic crisis and employment in South Africa
Neva Seidman Makgetla
The international economic crisis had a significant impact on South Africa, with a drop in the GDP and an even larger decline in employment from the end of 2008 through the third quarter of 2009. The impact was greatest in low-income, marginalised sectors – informal, domestic and agricultural workers – and for young adults.
Two aspects made the employment losses particularly harmful. First, South Africa has long faced unusually high joblessness by international standards. Second, the strong decline in employment in low-income sectors aggravated already deep inequalities.
Government’s short-run response, which included a counter-cyclical fiscal policy and substantial infrastructure investment, moderated the drop in investment and growth and presumably the loss of jobs. But it did not prevent a significant fall in employment or provide support directly to the self-employed informal and domestic workers who lost their incomes. A central weakness was the failure to address international capital flows, which recovered long before the world economy and propped up emerging economy currencies like the rand. That, in turn, undermined the competitiveness of the economy as a whole, slowing the overall recovery.
More broadly, the crisis pointed to the need to re-think traditional approaches to industrial policies, which still largely shaped South African economic policies. In particular, the space for growth on the basis of expanding exports of manufactures, always quite narrow for South Africa, seemed likely to shrink with the structural changes in the global economy associated with the crisis.
The first section of this paper reviews trends in employment for the year from the end of 2008. The second section describes the context – the high levels of joblessness and inequality that persisted even when the economy was growing relatively strongly before 2008. Section three describes the government response to the crisis as well as the available indications of its impact. The final section reflects on some of the implications for longer-term development strategy.
THE IMPACT OF THE GLOBAL ECONOMIC CRISIS ON EMPLOYMENT
The global economic crisis led to a sharper fall in South Africa’s employment than in the GDP. Moreover, the pattern of employment losses tended to deepen inequalities, with a particularly severe impact on marginalised and lower level workers and consequently on Africans and youth.
The international downturn affected South Africa directly through the constraints on the export sectors – mostly the mining value chain, the auto industry and the wood/paper sector – and the higher cost of international credit. As the following chart shows, after a decline of around 3 per cent in the GDP between the last quarter of 2008 and the second quarter of 2009, the economy grew by 1 per cent in the second half of 2009.1
Table 1: Quarterly GDP growth, first quarter 1994 to fourth quarter 2009
Source: Calculated from series on quarterly seasonally adjusted annualised GDP in constant (2005) rand. Statistics South Africa. GDP in excel spreadsheets. Downloaded from www.statssa.gov.za in April 2010.
The percentage drop in employment was significantly larger than the decline in GDP. Moreover, in the third quarter of 2009, while the GDP rose, job losses accelerated, especially in the formal sector. As table 2 shows, employment fell by around a million, or 6 per cent, between the fourth quarter of 2008 and the third quarter of 2009. Half of all job losses, and most of those in the formal sector, occurred in the third quarter of 2009.
Table 2: Employment losses in 2009
Source: Calculated from Statistics South Africa. Quarterly Labour Force Survey for relevant quarters. Table 2. Pretoria. Downloaded from www.statssa.gov.za in April 2010.
In the last quarter of 2009, employment increased by 89 000 or 0.7 per cent, which probably reflected the return to economic growth. The figures were not seasonally adjusted, however, and employment typically increases in December in any case; thus, the increase in employment, while welcome, probably did not herald a strong recovery.2
Taken together, informal, agricultural and domestic work contributed only 30 per cent of total employment. That meant job losses in these industries were proportionately far larger than in the rest of the economy, with a decline of more than 10 per cent overall. It appears that many formal employers cut hours and incomes from the start of the recession, although most avoided retrenchments at least until the third quarter of 2009. That, in turn, reduced demand for goods and services from (largely self-employed) informal and domestic workers.
Within the formal sector, job losses affected lower level, low-wage workers most heavily, further adding to the burdens on poor households and communities. As the following table shows, production and elementary workers lost around 10 per cent of all employment, with the steepest decline in the third quarter of 2009.
Table 3: Percentage change in formal employment by occupation, fourth quarter 2008 to third quarter 2009
Source: Calculated from series on occupations in Statistics South Africa. Quarterly Labour Force Survey from fourth quarter 2008 to third quarter 2009. Database in SPSS format. Downloaded from www.statssa.gov.za in November 2009.
The
