1. Unemployment and recession

South Africa faces a massive unemployment crisis, arguably one of the worst in the world "perhaps the highest in the world if compared with rates in countries of similar or larger population size"²⁵. It is a country of some 40 million people, of which 13,785,493 are economically active. Using the strict definition²⁶, 22.9 per cent were unemployed, and using the expanded definition²⁷, 37.6 per cent were unemployed in 1997. Of those in employment under 50 per cent are employed in the formal sector - formal-sector employment has declined from 5,697,559 in 1990 to 4,904,027 in 1997 - and the trend shows little respite. Of the unemployed, 35 per cent are below 25 and 72 per cent are below 35. These figures are national averages, the level of unemployment is much worse for the African population - for example, 61 per cent of young Africans between the ages of 16 and 25 are unemployed! Across all groups unemployment for women in the same age cohort is 54 per cent and for rural people, 56 per cent.

²⁵ Fallon, Peter and Lucas, Robert: South Africa labour markets adjustment and inequality, The World Bank Southern Africa Department, Discussion Paper 12, 1998.

²⁶ Strict definition: those people who are willing to accept a 'suitable' job if offered and have actively sought employment in the previous month (definition in Census).

²⁷ Expanded definition: those who did not work at the time of the census but were looking for work.

Poor economic growth is at the heart of this problem. Economic stagflation contributed to the decline of apartheid and since its demise, economic growth had not risen much above 3 per cent in the mid-90s and is hovering just above 0 per cent at present. Although there has been a net increase in foreign direct investment since 1994, these increases have not been able to offset the net foreign direct investment outflows. The Asian crisis has certainly exacerbated the problem.

Mr Elliot Riordan, an economist in the Development Economics Vice-Presidency at the World Bank, recently noted that 'The outlook remains somewhat gloomy for developing economies, with most of the slowdown in world economic growth in 1998-2000 being felt in developing countries. Those countries that have weak export markets or rely heavily on primary commodities for export will be particularly negatively affected by the financial crisis"²⁸. This is bad news for South Africa, with its exports still dominantly gold and coal.

²⁸ Quoted in Trade and Industry Monitor, March 1999, Volume 9, South Africa, page 21.

The poor labour absorption of the economy is aggravated by the abundant labour supply. Bhorat and Hodge have attributed this to a complex interaction of four key factors - (lack of) economic growth, multi-factor productivity growth, production method changes and, finally, structural (intersectoral) change linked to rapid trade liberalization. The net effect of these factors has been a lower demand for workers at the bottom end of the occupational ladder and increase in the demand for more skilled workers in the formal economy. The racial manifestation of this is that the group that has benefited the least from these shifts in labour demand has been African workers who, because of past discrimination in education and labour market policies, are concentrated in elementary occupations. These factors have behaved in this way due to historic bias of government incentives towards capital-intensive investments and a strongly monopolistic pattern of productive assets ownership - monopolistic practices overlaid with racist barriers to competition.

Since 1990, and more markedly from 1994, trade liberalization has had an increasing effect. The ILO South Africa Country Report on the 'Social Impact of Globalization'²⁹ found that traditionally strong sectors - such as the commodity exporting sectors - have been able to take advantage of the new trading environment. However, productivity increases have been achieved by labour shedding more than technological innovation. In mining, for instance, there has been the loss of 57,600 jobs (9.5 per cent) since 1994 and manufacturing has lost 94,900 (6 per cent). More labour-intensive sectors have tended to face increased competition on the domestic market and have also shed labour, although less markedly than the commodity exporting sectors. Only the trade and services sectors have seen any employment increase, but these have not been large enough to offset the losses in the primary and secondary sectors. Overall, South Africa has experienced a massive decline in agricultural (3.9 per cent) and mining (2.8 per cent) sector employment and an increase in financial (6.1 per cent) and other services (3.8 per cent)³⁰. These shifts have taken place in a context where absolute employment levels have increased by a meagre 13.8 per cent in 25 years.

²⁹ South Africa: Studies on the social dimensions of globalisation. Task Force on Country Studies on Globalization, ILO, Geneva. 1999.

³⁰ Bhorat, H. and Hodge, J. Decomposing shifts in labour demand in South Africa, 'People and Work' paper for Human Sciences Research Council, 1998.

Counter-intuitively, wages have risen for those in employment in line with productivity improvements. More traditional analysts argue that the rise in incomes for those in the formal sector has contributed to the low labour absorption rate of the South African labour market. These analysts blame labour legislation, which they believe introduces inefficiencies in the labour market. Others, notably the trade union movement, argue that macroeconomic policies and rapid trade liberalization together with productive asset concentration and monopolistic practices, are stronger determinants³¹. World Bank analysts have argued that extreme income inequalities in the labour market, caused by apartheid policies, are working their way out of the system and rising African wages are correcting artificially low wages for Africans brought about by apartheid influx control.

³¹ Heintz, James: Labour demand and job creation in South Africa, National Labour and Economic Development Institute, June 1998.

Whatever the causes, all agree that there is an employment crisis in South Africa. Unless economic growth associated with high levels of labour absorption can be achieved, the prospect of significant numbers of young people finding employment in the formal sector is extremely limited -irrespective of the active labour market or skill development strategies adopted.

What of the informal sector? South Africa has fewer people active in the informal sector than unemployed people - a profile which is unlike that of any other developing countries³², largely due to apartheid policies which suppressed entrepreneurial activity of the African majority for nearly 50 years. The ILO South Africa Country Study reported that for African men, white men and white women the rate of self-employment is approximately 10 per cent, and for African women is 18.4 per cent. The majority of some 2,664,554 'survivalist' and 'informal' activities occur in agriculture (781,193 or 29 per cent), construction (112,124 or 4 percent), trade, catering and accommodation (455,554 or 17 per cent) and community and social services (925,859 or 34.7 per cent)³³. Of all informal-sector activity, only 23 per cent of black people worked in production or trading activities. Subsistence agriculture is underdeveloped because of past land policies. Perhaps the fastest growing sector has been the taxi industry - where some 300,000 have become taxi drivers or owners.

³² Fallon, Peter and Lucas, Robert: South Africa labour markets adjustment and inequality, The World Bank Southern Africa Department, Discussion Paper 12, 1998.

³³ Adelzadeh, A.; Alvillar, C.; Mather; C. "Poverty elimination, employment creation and sustainable livelihoods in South Africa", A NIEP Report for UNDP, 1998, Table 13, p. 39.

So how do the poor survive, beyond dependence on limited social pensions? In general, poor families depend on income from the wage of a family member. Where there is no such income earner extreme poverty results.

In a recent study of one of South Africa's four main urban centres, Durban, it was found that three types of economic activity had increased since 1994 following the lifting of influx control:

· Firstly, new hunter-gatherer-type societies among the urban poor have emerged that are based on new networks and accumulate anything that can be accumulated from waste products like metal, copper wire, gas tanks, cardboard, synthetic materials, fuel, to whatever gadgets they can lay their hands on, steal, beg or borrow; these they sell for their survival. These micro-communities, many of whom are homeless, are expanding; the report provides the following example: the paper and pulp industry has outsourced to agencies the collection of waste-paper - labour in these, mostly black-owned agencies, is temporary and casual and concentrates on areas where bulk collection occurs. They themselves have women recyclers on the streets who collect paper and cardboard and get paid by the kilogram. None of these processes have expanded formal employment; the only expansion is in terms of the survivalist side of the trade as poor women and their children scour the streets for scrap.

· Also, new forms of servitude, of dependent labour are growing. If casual labour refers to occasional labour activity to execute formal jobs, these activities are subcasual and are at the beck and call of individuals who demand chores, duties, sexual favours and services. It appears that some of the most exploitative relationships are within extended family networks.

· The most visible form of work relates to the growth of street traders and hawkers, selling basic needs-related commodities to the black poor, trinkets and memorabilia to tourists, and food below formal shop-prices to urban workers³⁴.

³⁴ Sitas, A. "From people's skills to people's jobs- job creation and training in the Greater Durban area", research done for the Metro's Economic Development Department and the Job Creation Network, 1999, p. 13, emphasis added.

The same report makes the sobering assertion that incomes from these various activities range between R50 to R200 per month. It further asserts that raising these income levels cannot be achieved through internal resources alone. Indeed "the only occupations available that could radically boost income are illegal (high-jacking and drugs for the young men, prostitution and sex work for the women)"³⁵.

³⁵ Ibid, p. 45.

These incomes are substantially lower than those earned in the formal sector, as can be deduced from Table 1 showing the distribution of income levels³⁶ (in %).

³⁶ 1996 October Household Survey, Statistics South Africa. Exchange rate approximately R6 to 1 US dollar. So 26 per cent earn below $83 a month, and 62 per cent earn below $250 a month.

Table 1. Distribution of income level by group of population

	Men				Women				Total
	African	Coloured	Indian	White	African	Coloured	Indian	White
Above R3,501	6.0	11.6	29.7	64.7	5.2	7.1	16.7	35.4	16.2
R1,501 - R3,500	20.1	27.6	38.4	22.5	13.3	21.5	32.4	40.4	21.7
R1,001 - R1,500	23.8	21.0	18.3	5.7	12.5	21.9	26.0	10.4	17.4
R501 - R1,000	24.4	20.4	8.8	3.2	21.4	19.5	16.0	6.2	18.6
R0 to R500	25.7	19.4	4.8	3.9	47.6	30.0	8.9	7.6	26.1
Total	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0

The report concludes: "Nevertheless what is happening despite us, is a shift away from a system of high and stable wages to one with unregulated flexibility and subcontracting, despite trade union protests. At the same time, project-based development projects, pioneered by NGOs for absorbing and training young, black people, are beginning to compete and take over the jobs of the formal sector with incomes far below union rates. The difference between them and employers is their altruistic and community-conscious intention. Whichever way, by omission or commission, the city cannot afford any further deterioration of stable incomes, or the effects on the poor will be devastating"³⁷. It concludes that there is a need for all levels of government to link to community-level productive networks and to promote the production of new things, new commodities and services, of moving towards new specializations based on new technologies; it suggests that the search for alternatives, no matter whom it involves, has to be facilitated at local government level and has to include the contribution of productive networks that produce "a people's plan" that turns unemployment into employment and vulnerability into security.

³⁷ Ibid, p. 49.

How widespread is outsourcing and subcontracting? In the Labour Market Flexibility Survey conducted in 1995 and 1996 it was found that some 85.5 per cent of firms reported that they had made use of temporary/casual workers and 43.5 per cent had used contract labour. For those that argue that the South African labour market is over-regulated, it should be noted that these arrangements have taken place within the framework of the existing labour legislation - and the accusation of too much 'rigidity' seems exaggerated.