In the last edition of Umrabulo we looked at the theory of the labour market. In this second part our focus shifts to how employment and unemployment have evolved in the last decade.
As we noted in the last edition, discrimination on the basis of race, gender and other social institutions are common features of the functioning of labour markets in all countries. In South Africa's history, such tendencies were taken to an extreme: government policy over more than a century was designed explicitly for the purpose of creating and maintaining a dual labour market in which 'insiders' and 'outsiders' were defined in stark racial terms.
CHANGES IN THE LABOUR MARKET LANDSCAPE
Over the last ten years the nature of labour markets in South Africa have drastically changed. Three factors have driven the radical transformation of labour markets that we have experienced since the democratic breakthrough of 1994: (a) legislative reform to abolish apartheid labour relations and replace it with progressive labour dispensation, (b) increasing levels of unionisation in the formal sector of the labour market combined with active struggles by unions to transform the 'apartheid workplace regime' on the shop floor, and (c) the complex set of changes in technology and international economic relations that have become known as globalisation. Let's look at each in turn.
Legislative reform over the last ten years has been radical. Indeed, since 1994 we have realised (in law, if not in practice) virtually all the demands that the progressive trade union movement made in the course of the struggle against apartheid. The key laws that have been passed are:
A second important development has been the greater organisation of the union movement, as more and more workers (especially in the formal sector of the economy) take advantage of freedom and democracy to join unions, through which they have struggled to transform their conditions of work. While legislation has changed the law in respect of labour market practices, it is the increasing organisation of the workforce into unions that has, in tandem with new laws, altered the balance of power at the point of production.
FIGURE 1: Union density by sector in South Africa
Figure 1 shows 'union density' in various sectors of the South African economy in 2004. Union density is the percentage of workers in a sector that are members of a union. Only 2% of people employed in private households (ie. domestic workers) belong to a union, while 76% of mineworkers belong to one. Before 1994, unions in government were virtually banned, but today union density in community and social services, which includes government now stands at 57%.
A third factor that has driven the restructuring of labour markets has been globalisation. Unlike legislative reform and shop floor struggles, globalisation has not occurred as a result of the National Democratic Revolution. Rather, it is a set of objective changes in the global economy that have coincided, for better or for worse, with the historic changes associated with democracy and freedom. On the one hand, globalisation represents an advance in the technological basis of production.
Increasingly, it is those economic sectors that produce knowledge, or information, which are at the forefront of economic growth. These include the information and communications technology sectors, as well as a host of other service industries. It also means that information technologies are incorporated into traditional manufacturing techniques, leading to greater capital intensity. A key feature of such economic activities is that it requires a workforce which is much more skilled and educated than that required for traditional manufacturing techniques.
On the other hand, globalisation has also been associated with a policy choice in favour of global integration, expressed in the deregulation of capital markets (eg. the exchange rate) as well as an opening up of the country to foreign trade through the reduction of tariff barriers. This has meant that South African firms have had to compete in a global market place without the protection of the state. This has imposed pressures that have driven firms towards restructuring so that their costs of production are in line with international benchmarks. More often than not, the easiest way to engineer such restructuring is to reduce the staff complement of the firm.
In combination, legislative reform, growing labour organisation and globalisation have had a profound impact on the functioning of the labour market over the last ten years. All of these factors have had an effect on the demand for labour. Legislation and growing unionisation have undoubtedly had a profound impact on the cost of labour to firms. Whereas under apartheid, black labour was coerced and suppressed in order to maintain its cheapness, the protection of basic worker rights, either through the law or greater union organisation, have enabled workers (at least in the formal sector) to increase their wages and impose other labour costs on firms, such as those associated with skills development and other pro-worker legislation. At the same time the imperatives of globalisation have changed the occupational structure of the economy, reducing the full-time formal sector work available to unskilled workers, and creating new jobs for more skilled workers.
As we saw in the last part of this series, neo-classical economics analyses the level of employment as the outcome of the demand and supply for labour. All the factors we have considered in the changing labour market landscape have had their own effects on demand. Before looking more closely at this demand for labour (ie. the number and quality of jobs provided by the economy), let us first look at other factors that have affected the supply of labour (the number of people seeking work in the economy) since the advent of democracy.
LABOUR SUPPLY IN THE DEMOCRATIC ERA
The first factor to consider in the supply of labour is simply the number of people in the population who fall between the ages of 15 and 65. In 1995 there were about 24 million South Africans in this age group. In 2002 this number had growth to 28 million. But not all people aged 15-65 can be considered part of the labour force. Students in schools and universities, housewives who depend on their husbands for income and have no interest in paid work, and a host of other categories of people who are not seeking to work are defined as falling outside the labour force. The question of who is seeking work and who is not is quite difficult to answer, a matter we will return to below.
But the question that must be asked to find out what the supply of labour is in an economy is 'what is the labour force participation rate'. That is the percentage of people within the age group 15-65 who wish to provide their labour to the economy. In 1995 it was estimated that this labour force was about 14 million people, or 57% of the people between 15-65. In 2002 almost 19 million people, or 68% of the 15-65 age group formed part of the labour force.
In other words, over the last ten years of democracy there has been an increase in the population, but the increase in the number of people either employed or seeking work has been even faster. What accounts for this increase in people seeking work? To help answer let's break down these statistics into different racial groups. Figure 2 shows the labour force participation rates of Africans, coloureds, Indians and Whites in 1995 and 2002.
FIGURE 2: Labour force participation in 1995 and 2002 by race
In 1995 only 54% of Africans were participating in the labour force. By 2002 this figure had risen to 67%. At the same time, the growth of the African population between the ages of 15-65 has been greater than any other racial group. So not only has the African working age population grown, but the participation of Africans in the labour market has dramatically increased. While labour force participation rates have increased for all racial groups, the extent of the increase is by far greatest for Africans.
FIGURE 3: Labour force participation in 1995 and 2002 by gender and race
Next, lets look at the picture according to gender. Figure 3 illustrates labour force participation rates of men and women in 1995 and 2002, and breaks down female participation further by looking at race. A greater proportion of men have become economically active, up from 66% in 1995 to 72% in 2002. But the most striking feature of figure 3 is the dramatic increase in female participation in the labour force, particularly African women. Whereas only 47% of working age African women were considered part of the labour force in 1995, by 2002 64% of African women were either working or unemployed.
What accounts for this dramatic increase in the participation of Africans, and particularly African women in the labour force in the democratic era? Many explanations could be advanced to answer this question, and further research is required for a definitive answer.
Nevertheless, as we noted in the last part of this series (Umrabulo 21), the apartheid labour market had developed on a foundation of conquest and colonialism, in which the majority of the population were declared citizens of the 'bantustans'. The coercive system of labour contracts and migrant labour depended on Africans continuing to subsist on the meagre land of the bantustans, thereby subsidising the wages of the black industrial workforce. At the centre of this system was the triple oppression of African women. The dramatic expansion of female, and especially African female, labour force participation since the advent of democracy is undoubtedly linked to the profound social transformation unleashed by the consequences of the National Democratic Revolution.
The exact social and economic causes for the expansion in labour force participation in the early years of the democratic era will no doubt occupy researchers for years to come. But the fact is that democracy has coincided with a historically significant increase in the supply of labour to the South African economy. Having said this, lets now return to the other side of the market and look at what has happened to labour demand.
DEMAND FOR LABOUR
The demand for labour is based on two important considerations. The first is the demand for goods and services in the economy as a whole. Labour is demanded by firms in order to produce things they can sell. The overall quantity of goods and services in the economy is measured by Gross Domestic Product (GDP). Therefore, when GDP is growing fast, we would generally expect demand for labour to also grow.
The second consideration arises from the choice of what technology to use to produce goods and services. Put simply, a firm can choose between buying a machine or employing workers to perform the same job. The price of employing workers (ie. the wage) and the price of buying equipment are among the key factors that influence this decision.
We have already mentioned that globalisation has had a profound impact on our labour market. Among the most important effects has been the increasing use of technology, especially information and communications technology. Not only has this meant the replacement of people with machines and computers, it has also resulted in firms demanding increasingly skilled workers.
According to the government's Ten Year Review, between 1995 and 2002 the economy created 1.6 million net new jobs. Behind this estimate of the quantity of labour demanded by the economy lies important changes in the quality of work being offered. Among the most important qualitative changes in demand have been:
'Contracting out' is one example, where employers avoid direct employment by hiring another company to provide the labour they need. This makes it easy for them to hire and fire the workers they employ at whim.
UNEMPLOYMENT AND EMPLOYMENT
We now conclude by considering unemployment, which is one of the most serious problems facing our economy in the democratic era. As we have seen, the demand for labour has increased by more than one and a half million since 1995. But, at the same time, the supply of labour has also increased dramatically, as a result of the increased levels of participation in the economy, particularly among African women. The result has been increasing levels of unemployment, as the number of jobs created has not matched the growth in the number of people seeking work.
In order to define the level of unemployment we must return to a question we first raised when discussing labour force participation. There we noted that in order to identify the labour force we would need to know how many people were seeking to work. If somebody is not working, but does not want to work, they cannot be defined as unemployed. Only those who are willing and able to work, but have no job, can be properly called unemployed.
But matters get even more complicated. In South Africa there are two definitions of unemployed, the broad and strict (or official) definition. The strict definition defines the unemployed as those within the ages of 15-65 who:
In other words, when surveys are conducted to find out how many people are unemployed, these three questions are asked. Those who answer yes to all three are defined as unemployed in the official statistics.
The broad definition of unemployment is exactly the same, except that it does not include question (c). The broad definition therefore regards people as unemployed if they are not working and are available to work, whether or not they have taken active steps to find a job.
FIGURE 4: Employment and unemployment in 1995 and 2002
It may seem a small difference, but figure 4 illustrates how the broad and narrow definitions have a large impact on the numbers of people we consider to be unemployed. If we use the narrow definition, then the number of unemployed people has grown from two million in 1995 to five million in 2002. Using the broad definition (ie. including those who have not taken active steps to look for work despite wanting to work) the picture is much more severe. With the broad definition the number of unemployed has grown from 4.2 million in 1995 to 7.9 million in 2004.
Whichever definition we choose it is clear that the unemployment problem is very serious. If we take the number of unemployed people and divide it by the total labour force we arrive at the rate of unemployment. This is the percentage of the labour force which cannot find a job. Using the narrow definition 31% of the labour force is unemployed. Using the broad definition this rises to 42%.
CONCLUSION
The ANC election manifesto of 2004 committed us to halving the rate unemployment by the year 2014. This means that we should reduce the rate of unemployment from 31% to 15% (using the narrow definition). The government has outlined a number of policies to achieve these objectives. The most important will be to raise the growth rate of GDP, which in turn leads to more jobs. On the other hand, the supply of labour is very difficult to control. Changes in the population, as well as the participation of people in the labour force, will have a direct bearing on our objectives over the next ten years. Also of great importance will be to provide people with the skills they need to participate in the economy. As we have seen, new jobs are growing for skilled people much faster than they are growing for the unskilled.
In the days of apartheid, the labour market was rigidly controlled to keep down the price of black labour. In the democratic era, labour markets have been fundamentally transformed. While legislation and greater unionisation have enabled workers to claim their rights, these changes have also raised the cost of labour. At the same time, the changes associated with the National Democratic Revolution have seen even larger numbers of people seeking work. How we rise to these challenges over the next decade will be the acid test of our programme of transformation.
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