ABC of Economy: The unemployment crisis in South-Africa


youth-unemployment-

In this section of the ABC of the economy, we will address the critical issue of unemployment and labour market.

The job market like any other market describes the connection between supply and demand. Whoever wants to study the job market, in developing countries in the same way as the one treated in textbooks of advanced economies will be very disappointed. just check the data of international institutions on unemployment for developing countries and you would confirm what I have just outlined.

With time and maturity, however, I realized that the labor market in developing countries offers a unique perspective. It is indeed a market where youth unemployment rate is very important. Nearly 33% in the Maghreb and 40% in Africa south of the Sahara. In addition to the problem of youth employment, there is an interaction between rural and urban areas. This model of the labor market in developing countries has been highlighted by US economist Arthur Lewis.

Before going further lets us have a definition of unemployment:

Unemployment represents all persons 15 and older, with no job or actively looking for a job.There is then
1.An age criteria(15 or older)
2.social situation criteria(with no job)
3.process criteria (actively looking for a job)

After this definition move to what is commonly called the unemployment rate. The unemployment rate is the proportion of unemployed (15 and older, with no job or actively looking for a job) over the entire workforce.

Ft = the work force

E = share of the people having a job

Ch = share of the unemployed population

Dc = share of discouraged workers not seeking employment

So

Ft = E + (Ch + Dc)

From this equation, the number of unemployed in an economy is the difference between the labor force and the labor force

South Africa Q3(15) Q2(15) 2003 2008
Unemployment rate (u) 25.50 25.00 31.20 21.50
Labour participation (te) 58.80 58.10 60.80 53.60

The highest unemployment rate in South Africa was 31.5 % in 2003. When in 2008 the participation rate reached 53.60 %, unemployment rate was also at 21.5, its lowest level ever. When the unemployment rate went from 25 to 25.50 % participation rate increased from 58.10 to 58.80. This comes from a rise in workers actively seeking work (359,000 people when the rate of discouraged workers fell by 200,000.)

Generally when discouraged workers (who are not counted among the unemployed) are beginning to actively seek work, they are automatically and officially categorized, as unemployed  increasing thus the flow of existing unemployed into the labor market. This therefore increases the unemployment rate and the participation rate.

Mounou Konan Global economics Consulting

 

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