South Africa's labor market continues to suffer: Is there any relief in sight?
The unemployment rate in South Africa hit a whopping 34.4% in the second quarter of this year—the highest level since current records began back in 2008. SA’s labor market was already in a sickly way leading up to the pandemic, predominately due to relatively weak private investment levels and a lack of labor market reforms, which have led to an extremely large proportion of inactive workers and low self-employment numbers. Over the last year, the pandemic and its subsequent lockdown measures, power shortages and social unrest have only exacerbated matters. Of particular concern are the roughly 17 million South Africans not playing an active role in the labor force—approximately 43% of the working-age population.
Looking ahead, our panel of analysts projects that the unemployment rate should dip slightly in H2 this year but will remain excruciatingly high nonetheless, and risks are tilted towards the upside. For example, a resurgence of the civil unrest seen at the start of Q3, which caused roughly USD 3.4 billion in damage and impacted thousands of businesses, would bode poorly for employment prospects ahead. Meanwhile, still-elevated new Covid-19 cases, a below-par vaccine rollout, some ongoing measures to contain the virus and a likely Q4 rate hike from the Central Bank are all sure to keep slack in the labor market.
Our panel of experts sees the unemployment rate averaging 32.9% in 2021, but the range of forecasts is wide, with the maximum projection coming in at 37.0% and the minimum at 30.0%
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“The labor market outlook remains weak, with further deterioration likely in the third quarter as the government tightened movement restrictions amid the raging Covid-19 third wave and as deadly riots erupted in July.”
Commenting on the benefits of labor reform and policy changes in their latest South Africa report, economists at the IMF concluded:
“A bold strategy to reform labor market institutions is needed to tackle the root causes of extreme structural unemployment. To raise employment and reduce inequality, labor market institutions need to function more smoothly—with a focus on strengthening coordination among social partners, accommodating firm heterogeneity and reducing uncertainty. This requires reforms in the areas of collective bargaining and employment protection legislation, as well as careful minimum wage setting. Being regulatory reforms, these have the further advantage of not requiring government spending—unlike other desirable policy changes that should wait until fiscal space is restored. And if properly designed and swiftly implemented, they could speed up the jobs recovery from the Covid-19 shock.”
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Author: Steven Burke, Economist
Date: September 1, 2021
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