Concerns with South Africa’s Improved Unemployment Rate

Sources:

Bloomberg:  South African Jobless Rate Falls to 24.9% in Second Quarter

BusinessDay:  Jobless Rate Dip Spoiled by Shocks at Factories

Ventures:  Economists Worry Despite South Africa’s Unemployment Dip in Q2

WSJ:  Growing Pains Strain South Africa

On July 31, 2012, Statistics South Africa—South Africa’s national statistics board—reported that the nation’s unemployment rate fell from 25.2% in the first quarter of 2012 to 24.9% in the second quarter. This drop in South Africa’s unemployment rate is a positive result for the country, which has not reported unemployment rates below 20% since the end of the Apartheid (a system of racial segregation in which the white-minority held all the power) in 1994. South Africa struggled with high unemployment rates since 1994 because its economy failed to grow quick enough to support the influx of workers that the white-minority rule previously prevented from holding employment.

Even though the recent drop in the unemployment rate seems positive for South Africa, independent economist Mike Schussler and STANLIB’s chief economist Kevin Lings—STANLIB is a top investment management firm in South Africa—argue that the drop in the unemployment rate is not as strong of an improvement upon deeper analysis. The first concern these economists have with South Africa’s unemployment rate drop is that the total labor force also dropped. The number of jobless South Africans dropped by 56,000 during the second quarter of 2012. However, the number of employed South Africans increased by only 25,000. Therefore, approximately 31,000 South Africans left the labor force. Economists like Schussler worry that this drop in the labor force hides unemployed South Africans. This is because the unemployment rate only includes South Africans that actively look for employment. If the unemployment rate also included those South Africans that stopped looking for work, then the unemployment rate would likely be even higher.

The second concern with South Africa’s dip in its unemployment rate is that the mining sector of the economy created 21,000 jobs despite increased costs and decreased global demand in such sector this past year. Thus, Schussler characterizes the new job creation in the mining sector as unusual. Moreover, Statistics South Africa admitted that it is possible their survey did not accurately depict the mining sector’s unemployment rate because the mining industry in South Africa is clustered—an industry cluster is a group of interconnected firms in the same geographic location with similar markets, customers, and value chains. Due to this interconnectedness and overlap among businesses, South African mining businesses could likely report some workers twice, which would result in a more optimistic unemployment rate.

The third concern is that South Africa’s unemployment rate will not continue to improve in the coming months because of a slowing economy. The loss of jobs in both the manufacturing and trade sectors of South Africa’s economy reflect the slowing economy. The South African manufacturing sector’s total jobs fell by 2.6% or 44,000 jobs, while the trade sector’s total jobs fell by 3.0% or 91,000 jobs. South Africa remains susceptible to further job losses in these sectors as Europe and China—South Africa’s main trading partners—will likely demand fewer exports due to a continuing debt crisis in Europe and slower growth in China. The World Bank also acknowledged the slowing South African economy when it adjusted its annual growth forecast for South Africa from a 2.7% increase in GDP to a 2.5% increase in GDP.

South African leaders such as the deputy director-general of social and population statistics of Statistics South Africa, Kefilo Masiteng, recognize that the unemployment rate in South Africa is a national crisis and that the country is far off reaching its goal of reducing unemployment to 14% by 2020. However, although the drop in the nation’s unemployment rate raises concerns, South African leaders also believe that the drop in the unemployment rate signifies hope for improving South African unemployment in the future.