After the Bell: Are we ready for a big debate about SA’s unemployment rate?

I cannot tell you how many times I have read these words: “South Africa’s unemployment rate, the highest in the world, …” blah, blah blah. It’s worrying, irritating, demeaning and, I’m willing to bet, totally wrong. Of course, that doesn’t mean SA does not have an unemployment problem, but it’s very different from the one generally described.

You need to bear three things in mind. The first is how the history of SA’s employment and unemployment has unfolded. Second, the incentives for those cited in the official surveys on the subject, and third, the incentive systems for the people who cite SA’s unemployment levels.

Let’s start with the data itself, as presented. 

This is a little dated — it comes from an article penned for the Human Sciences Research Council in 2022, The State of Employment and Unemployment in South Africa, by one of the country’s most engaged and informed economists, Miriam Altman. 

As everybody who follows this data knows, SA has two measures: a strict definition, which, as is normal in international practice, excludes people who have given up looking for work. We also have a broad definition that tries to take into account the general working-age population. Both of these measures are parlous and both have been increasing. 

Altman says the build-up of unemployment in South Africa over the past decades can most accurately be attributed to the demise of jobs in traditional resource-based industries in agriculture and mining without a concomitant employment take-up in more advanced industrial sectors, as would be expected in a process of structural change and development. The other important factor is “weak human and physical capital formation”, which goes back to the apartheid minerals economy. 

The nature of employment has also been changing rapidly because the proportion of formal-sector workers to informal-sector workers has been declining dramatically. Between 1994 and 2001, it fell from 69% to 49%. “At the same time, those underemployed rose from 14 to 21 per cent, and unemployed from 17 to 30 per cent,” writes Altman.

This is all interesting and significant, but there is a contrasting view offered by GG Alcock, who is well known as a champion of the “ikasi” economy and has written books on his adventures in small business entrepreneurism. He goes nuts when he reads about the notional unemployment levels in SA and says the “unemployment stats are rubbish” because they measure something he calls “payslip employment”.

In his book, Born White, Zulu Bred, he estimates that “real unemployment” in SA, which means a lack of any form of income (excluding social, old age or unemployment grants), is around 12%. To get to this number you have to look further than SA’s official statistics and into SA’s corporate sector. One example he cites is Transaction Capital’s CEO, David Hurwitz, who pointed out that even though technical unemployment is at historically high levels, one-third of customers making monthly repayments on their debt via TCRs were not formally employed, “reflecting some resilience in South Africa’s informal sector”.

To take another example, Capitec CEO Gerrie Fourie was reflecting on the bank’s stellar performance and made the point that after walking around some of SA’s townships and seeing the vibrancy of the businesses, he asked his staff to calculate how many Capitec customers were making deposits of more than R3,000 five times a month. The number had increased from about 200,000 in 2018 to more than a million in 2022. And these are deposits into personal accounts, not business accounts. 

In some ways, Capitec’s extraordinary advance is itself an example of this trend. The bank now has an active client base as large as the SA clients of Standard Bank, Absa and Discovery Bank combined. How did the pillars of SA’s banking industry miss this trend? 

One possibility is they were relying on the official numbers about SA’s unemployment rate and betting, as conservative bankers must, that the economy was under pressure, so the banks’ lending policies should be constricted till the economy turned around. 

Alcock’s numbers are routinely questioned by formal economists, who claim they are too anecdotal and based on questionable statistical methods. Fine, but here is the thing: SA’s unemployment stats claim the absolute number of people in SA’s “informal sector”, as it’s called — trust me it’s not informal to the people living in it — has consistently been a little over six million people since 1994, compared to just under 11 million people in the formal sector. 

That is just horse manure for two reasons: it’s too small and it cannot have been that consistent over 30 years. Some of what Alcock discovered by actually talking to people in SA’s informal sector is just how much some street sellers take home. 

A recent survey by a group called African Response found that among people who classified themselves as unemployed and looking for work, 41% were earning up to R15,000 a month through income-generating activities such as baking, building and hairdressing — the “side hustle”. They say, “What this shows is that many of our young people are resilient and inventive about making ends meet. We need to reinforce that and build their confidence so that that attitude catches on.”   

So, back to the incentives of the different players here. I don’t know how much this all plays into these issues, but just think about it for a moment. “Progressive” economists and politicians have a huge incentive to bump up these numbers to justify extra fiscal distribution. Opposition politicians have an incentive to boost these numbers because they can rub the government’s nose in this “failure”. People who answer surveys about employment have a big incentive to not alert the taxman to their business successes.

The big problem that underlies it all is that economic change happens fast, but government statistics move slowly. They need to catch up. DM