Transcript Graduate unemployment and graduate employability

Unemployment and the
South African labour market
Hendrik van Broekhuizen
Research on Socio-Economic Policy
Stellenbosch University
12 September 2013
Concepts, figures, and statistics in this
presentation: Primary sources
o CDE. (2011). A fresh look at unemployment: A conversation
among experts. CDE Workshop Paper, Centre for
Development and Enterprise
o StatsSA. (2013). Quarterly Labour Force Survey: Quarter 1 Press
Statement. Statistics South Africa.
o CDE. (2013). Graduate unemployment in South Africa: A much
exaggerated problem. CDE Insight. Johannesburg: Centre for
Development and Enterprise.
o CDE. (forthcoming). South Africa’s education crises. CDE
Insight. Johannesburg: Centre for Development and
Enterprise.
o OECD. (2013). OECD Economic Surveys: South Africa 2013.
OECD Publishing.
Why focus on unemployment?
o Unemployment and employment are measures of
a country’s socio-economic health.
o Global employment crisis following financial crisis
o High and/or rising levels of unemployment are
increasingly becoming
• cause for concern
• the target of policy interventions
• The basis for political and ideological division
-10%
Iceland
Ireland
Turkey
Japan
Finland
Slovenia
Mexico
Hungary
Denmark
Sweden
Slovak Republic
Greece
Germany
United Kingdom
Czech Republic
Spain
Korea
United States
Chile
France
Portugal
Canada
SOUTH AFRICA
New Zealand
Australia
Poland
Figure – Peak-to-trough fall in output and employment (2007 –
2010)
15%
10%
5%
0%
-5%
GDP Change
Employment Decline
-15%
Figure – Total employment in SA (2008 – 2013)
14,200
14,000
13,800
13,600
13,400
13,200
13,000
12,800
12,600
1 000 000 jobs lost
12,400
646 000 jobs gained
2013Q1
2012Q4
2012Q3
2012Q2
2012Q1
2011Q4
2011Q3
2011Q2
2011Q1
2010Q4
2010Q3
2010Q2
2010Q1
2009Q4
2009Q3
2009Q2
2009Q1
2008Q4
2008Q3
2008Q2
2008Q1
12,200
Why focus on SA labour market?
o Engine of economic development
o Vehicle of socio-economic change
• For good or bad
• Features and issues will propagate through
entire economy
The South African labour market
33 million Working-age Population
33 million Working-age Population
12.7 million
NEA
33 million Working-age Population
12.7 million
NEA
13.6 million Employed
33 million Working-age Population
12.7 million
NEA
2.3 million
Discouraged
work seekers
13.6 million Employed
33 million Working-age Population
12.7 million
NEA
4.6 million
Unemployed
2.3 million
Discouraged
work seekers
13.6 million Employed
Who are the unemployed?
70.7% between
15 - 34
HELP
59.4% have less
than matric
65.3% long term
unemployed
44% new entrants
49.1% females
The scale of SA’s unemployment crisis
Broad
2013Q1
Narrow
2012Q4
2012Q3
2012Q2
2012Q1
2011Q4
2011Q3
2011Q2
2011Q1
2010Q4
2010Q3
2010Q2
2010Q1
2009Q4
2009Q3
2009Q2
2009Q1
2008Q4
20%
2008Q3
35%
2008Q2
30%
2008Q1
Figure – Official and expanded unemployment rate (2008 – 2013)
40%
36.7%
28.2%
25.2%
25%
23.5%
15%
The scale of SA’s unemployment crisis I
o Official unemployment rate underestimates crises
• Excludes discouraged work-seekers
o Employment rate may be more reflective
Figure - Employment rate in SA and select countries, 2008
China
Brazil
Indonesia
Upper half of OECD countries
Russia
India
Estonia
Slovenia
Israel
Chile
Lower half of OECD countries
South Africa
0%
10%
20%
30%
40%
50%
60%
70%
80%
40%
30%
25%
20%
2013Q1
55%
2012Q4
2012Q3
2012Q2
2012Q1
2011Q4
2011Q3
2011Q2
2011Q1
2010Q4
2010Q3
2010Q2
2010Q1
2009Q4
2009Q3
2009Q2
2009Q1
45%
2008Q4
50%
2008Q3
60%
2008Q2
65%
2008Q1
Figure – Official LFP rate and ER (2008 – 2013)
57.9%
54.8%
44.3%
41.0%
35%
LFP
ER
15%
The scale of SA’s unemployment crisis II
o Employment rate perhaps more reflective than
official unemployment rate, but
• Still includes underemployed
• Even so, we are lagging behind internationally
o To reach international norm of 60% ER
• requires 6 million more jobs than the current
13.6 million
o How do we create those jobs?
Economic growth and job creation
Employment and Growth I
o Economic growth necessary condition for job
creation, but not sufficient
o Economic growth is not a sufficient condition for
job creation
o Employment coefficient
Figure – GDP growth versus job creation, 1970s – 2000s
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
1970s
GDP
1980s
Employment (public)
1990s
Employment (private)
2000s
Employment and Growth II
o Why an employment coefficient of <0.4?
• Decline related to many factors
− Economic, legislative, regulatory pressures
− Drive industries and employers toward less
labour-intensive
and
more
skill-intensive
production
o To reach international norm of 60% ER requires
• 33 mill + 7% GDP↑ for 15 years
• 1.9%↑ in 33 mil + 7% GDP ↑ + >40 years
o Growth alone, even when rapid and sustained,
cannot be a solution to unemployment
o How to increase labour intensity?
Drivers of economic growth in SA
o Driven primarily by unsustainable ↑ Government
spending since 2000
o Local markets small = reliance on exports
o Employment growth requires labour-intensive
exports and competitiveness
o Detrimental factors
• High cost of doing business, cost of labour,
exchange rate (volatility)
• High transport costs
• Regulatory burden
• No economies of scale
The role of labour market regulations
Employment, labour costs, and productivity
o Employment = f(Labour Productivity, Labour Cost)
o Labour cost
• Wages and benefits (direct)
• Training, other benefits, complying with regulatory
requirements (indirect)
• Risk → increases potential labour cost
o ↑∑LC fewer job offers and jobs created
o ∆Employment = f(LP/LC)
o Employers have two responses to high labour costs:
• Pass costs on to consumers
• Employ fewer high-cost, low-productivity labourers
Figure – Average changes in productivity and real wages per
decade, 1970 - 2009
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
1970s
1980s
Wages
1990s
Productivity
2000s
Unions and collective bargaining
o Empirical evidence
• Unionised workers’ wages 10% - 20% > nonunionised
• Firms covered by collective bargaining have ↑
wage rates ↓ employment
o Only third of formal economy covered by
centralised bargaining
• Sectors concerned among most critical
• Provide benchmark for wage ↑ in other sectors
o Severs link between productivity and wages
The Costs of dismissal
o Cannot hire low-productivity cheaply, so don’t
hire at all
o Exacerbated by non-wage costs and risks
associated with employment.
o The more risky, the less likely to be employed
• Young
• Unskilled
• Inexperienced
o Costly and risky to dismiss employees
The Costs of strikes
o Labour regulation in SA perhaps on par
internationally
o Real crux is ‘militancy’ of SA trade unions
o Raise the risk-adjusted wage and non-wage costs
of employment
o Strike action heavier in public than private sector
(in general)
• Knock-on effect i.t.o. services protests,
disruptions, and further strikes
Figure – Number of working days lost due to industrial action
(2005 – 2012)
22,000,000
20,000,000
18,000,000
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
2005
2006
Days lost
2007
2008
2009
Days lost (other sources)
2010
2011
Average
2012
The Costs of strikes
Strike action in 2012 – scale of militancy
o 17.3 million working hours lost due to illegal or
unprotected strikes
o 99 strikes of which half illegal
o 118 200 workers involved, 100 850 in the mining
sector
o Strikes often accompanied by violence and
destruction of property
The Costs of strikes
Strike action in 2013 – implications of militancy
o 3-week strike in automotive manufacturing sector
• Gained:
− Wage increases >>>> inflation
• Lost:
− 45 000 vehicles, R20bn in potential revenue
− GDP, tax receipts, workers pay, employment
numbers
− Allure as FDI destination
o SA motor industry = 30% of industrial output and just
under 5% of GDP.
o Strikes rob SA of business opportunities – i.e.
employment opportunities
The role of labour market reform
o Little agreement on labour reforms between
labour and industry
o Need to identify reforms that will stimulate
establishment of labour-intensive enterprises.
• More medium and low-productivity firms with
lower employment costs
o SA’s ‘missing middle’
o Reforms are on the table, but…
Matching labour supply and demand
Social grants and LFP
o SA LFP rate low (54.8%)
o Historically low among women and blacks
o Does social welfare incentivise or disincentivise
LFP?
• Mixed empirical evidence in SA
• Increase in access to social grants coincided
with increase in LFP rates
o Increases in LFP not commensurately met by
increases in employment
• Rising unemployment
Figure – Labour force participation rates in 25 countries (2008)
Turkey
SOUTH AFRICA
India
Chile
Italy
Mexico
Poland
Korea
Indonesia
France
Czech republic
Ireland
Russioa
Spain
Portugal
China
Japan
Brazil
Germany
U.S.A.
U.K.
Australia
New Zealand
Denmark
Sweden
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Figure – Social grants versus labour force participation rates (1996
- 2009)
60%
15,000,000
50%
12,500,000
40%
10,000,000
30%
7,500,000
20%
5,000,000
10%
2,500,000
0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0
Reservation wages
Reservation wages and LFP
Mixed evidence for SA
However, long job queues suggest not…
Expanded Public works Programme and labour
brokering, e.g.
o Most unemployed have never been offered a job
rather than turning down wage offers
o Reservation wages likely to play more of a role at
the upper end (skilled labour)
o
o
o
o
Recruitment practices
o Job search affects unemployment and
recruitment practices affect employment
• Firms screen applicants based on productivity
signals
• Firms wanting to fill low-skill entry-level jobs may
use other selection methods
− Experience and in-house recruitment
− Mitigates risk
• May not advertise jobs
− Does not affect # jobs on offer, but makes
access to employment more exclusive
Figure – Share of working-age adults employed in informal sector
50%
40%
30%
20%
10%
0%
Indonesia
Brazil
India
Chile
SOUTH
AFRICA
Russia
Skills and unemployment
o Skills shortage and mismatch
o SA has skill-biased employment growth
o 59% of unemployed
• Have never worked
• Have never had the opportunity to acquire onthe-job skills
o Lack of vital skills and aptitudes for employment
central to unemployment
o Riskiness of labour market raises appeal of
experienced work-seekers
A vicious cycle?
Abundance of
inexperienced,
unskilled
unemployed
Firms employ
mostly
experienced,
highly skilled
workers
Need low-wage,
low-productivity
industries & jobs
Labour legislation &
Economic Policies
Firms prefer
low-risk job
applicants
High
costs of
dismissal
High
productivity,
high-wage
industries
Solving the unemployment crisis
o Short-run: ???????
o Lon-run: more skills
o Not just more education, but better education
• Focus must shift from quantity to quality
• Employers look for productivity signals
• Is education a good productivity signal in SA?
Developing skills
o
o
o
o
o
o
FET colleges?
Artisanship training?
University?
Support for job-seekers?
Youth employment incentives
Expanded public works?
Figure – Narrow unemployment rate for tertiaries
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
Year
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
Diplomates
Tertiaries
Graduates
95% CI
Figure – Graduate Narrow Unemployment Rate (2008 – 2013)
8
7
6
5
4
3
2
1
Estimated slope coefficient for linear trend line: 0.11 (0.02)
Year
Narrow Unemployment Rate
95% CI
2013
2012
2011
2010
2009
2008
0
Thank you