EXECUTIVE SUMMARY
Unemployment, economic growth and social inequities: How government could make a difference
Over the past decade the policies of macroeconomic stabilisation and trade liberalisation have contributed to improved economic growth performance in South Africa. However, despite the improved growth, the economy's ability to create jobs for its relatively large and growing population has been dismal and projections based on the continuation of the status quo, indicate that the situation will worsen over the next ten years. Focus 53 investigates the reasons for this phenomenon and attempts to provide guidance with regard to government policies and priorities that could make a difference.
The research shows that a dedicated supply-side approach should be employed to increase the economic growth rate to at least the 5 per cent level. Only at that level will growth be sufficient to gradually close the unemployment gap and unrealistically high GDP growth rates in excess of 8,5 percent would be required to fully resolve the unemployment problem. This phenomenal supply-side drive would entail government's commitment to improve its role as facilitator of the growth process through infrastructure development, creating stability and enhancing human skills. It should be clearly stated though that any attempt by government to create jobs only through increased levels of consumption expenditure would only worsen the problem while similar efforts through investment expenditure hold much more promise. Furthermore, it is imperative that government, through its expenditure policies, target industries with the highest employment coefficients in order to increase employment in these sectors.
An analysis of the structure of the South African economy has shown that it is featured by a high level of dualism, which complicates the development process. A sophisticated and industrially developed core economy, linked to global markets, is surrounded socially and politically by an economic periphery, which operates largely outside the core economy. Those involved in parallel economic activities generally find it extremely difficult to enter the core economy because of a lack of skills and financial backing. Everything possible should be done to remove these barriers and speed up participation/inclusion of those in the parallel economy or the consequences will negatively impact on the growth and development of the total system.
As an interim measure supplementary programs such as a large-scale, labour-intensive public works strategies should also be considered. Focus is of the opinion that properly designed labour-intensive public works could offer solutions in support of supply-side induced growth. Such programs should provide training and work experience to people who sorely lack both. Unlike income grants, which require immense state capacity to target intended beneficiaries while avoiding fraudulent behaviour, low-wage labour-intensive public works are self-targeting. However, such programs have to be managed carefully and at low cost.
The research indicates that over the next decade the brunt of new jobs will be created through the conventional process of increased growth and improvements in the exploitation of employment coefficients in certain identified sectors. Should the policies discussed be implemented, the unemployment rate could be reduced to about 23 per cent by 2013 against the current 30 percent. However, this would only be possible if the growth rate is increased to hover above the 5 percent level, which in turn will only be possible if the identified social constraints are removed. The balance will have to find jobs through supplementary programs such as public works programs which could add an additional 700 000 jobs per year and reduce the unemployment rate to about 20 percent.
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