Bell, Trevor : Unemployment in South Africa

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i
CONTENTS
Page -
u.t
of Tabla0 and Figures
Prefaca
section 1 : napirical Evidence
Saction 2 : Causes
Section 3 : Policy
Ealact Bibliography

List of Tables and Figures
Page
Table 1
Applications by Whites for Employment through
Government Labour Exchanges 1914-1940
Table 2
Table 3
Table 4
Figure 1
Table 5
Unemployment Rates in South Africa 1960-1982
Black Unemployment in South Africa 1960-1980
Unemployment Rates in the United Kingdom 1965-1983
Unemployment Rates: United Kingdom and South Africa
Unemployment Rates in Some OECD Countries and South
Africa since 1974
Table 6
Registered Unemployment Rates among Asians.
Coloureds and Whites 1948-1983
Figure 2
South African llnemployment Rates: A11 Races and
Registered Unemployment of Asians, Coloureds and
Whites
Table 7
Non-Agricultural Employment and Population Growth
Pates by Five Year Intervals 1946-1983
Figure 3
Non-Agricultural Employment Growth, Population
Growth, and Unemployment Rates in South Africa
1947-1983
Table 8
Real Interest Rate and Rate of Increase in Non-
Agricultural Employment 1952-1983
Table 9
Real Interest Rate and Average Annual Chanqes of
Certain Variables in Manufacturing Industry:
Historical Averages 1960-1980

Preface
This paper is an extension of work undertaken by the present writer in
1983 on "The Growth and Structure of Manufacturing Employment in Natal".
That study revealed inter alia a declining rate of growth of manufacturing
employment in the country as a whole and in particular in the major
industrial areas, including the Durban-Pinetown region. It was therefore
decided to focus directly on the problem of unemployment, initially
dealing with the question of scale and definition, causes, certain other
conceptual issues, and remedies, in relation to the country as a whole,
with a view to using it as a background to subsequent analysis focussing
more particularly on the problem of unemployment in the Natal region. The
present study deals with the problem at the national level, and it is
hoped that a further analysis dealing with Natal will be undertaken at the
Institute in due course.
I am grateful to Mahaviehnu Padayachee for his assistance in extracting
statistical data and in conducting a bibliographical search, and for his
friendly interest in the work. A preliminary report on some aspects of
the project, entitled "Unemployment in South Africa: Trends, Causes and
Cures", was presented as a joint paper by myself and Vishnu Padayachee at
the Conference of the "Second Carnegie Inquiry into Poverty and
Development in Southern Africa" held in Cape Town from 13 to 19 April,
1984.
A special word of thanks is due to Charles Simkins of the School of
Economics, University of Cape Town for a number of conversations which
helped me to clarify certain aspects of the calculation of unemployment
rates in South Africa, and for providing me very recently with revised,
unpublished unemployment estimates. Naturally, neither he nor anyone else
is responsible for any remaining empirical or theoretical errors.
I owe a great debt in this, as in my earlier work, during the past
eighteen months, to Professor John Butler-Adam who has made my stay in the
Institute a most enjoyable and stimulating experience.

The problem of unemployment became a subject of heated discussion
amongst economists in South Africa in the mid-19708, for the first time
since the Second World War. It remains a highly controversial matter
which has by now generated a quite substantial body of literature. In
view of the rather unsettled nature of the discussion, there seems to be a
great need for further attempts to clarify the nature of the issues, and
thereby, if poesible, to throw new light on the problem.
The aim of this study is to consider the main theoretical and empirical
issues in the debate on the nature and extent of unemployment in South
Africa. The analysis includes such questions as (1) whether there is a
tendency for the unemployment rate in South Africa to rise, and, if so,
whether this is a cyclical or secular problem, (2) the causes of the
observed trends in unemployment rates, including the question of whether
the unemployment is voluntary or involuntary; (3) the scope for
governmental policies aimed at employment creation. These three aspects
of the problem, naturally, overlap considerably and it will be impossible
to keep them entirely separate, but we shall attempt to deal with them in
this order in the three main sections of the paper.
1. Empirical Evidence
The problem of persistently high rates of unemployment in South Africa is
of course by no means a new one. Estimates of Black unemployment on a
year by year basis appear to be available only for the period since 1960.
Official records of registered unemployment amongst Asians, Coloureds and
Whites however, have been systematically maintained on a regular basis
since 1948. In addition, it has been possible to compile a reasonably
consistent series of unemployment rates for Whites covering the period
1914 to 1940, which is presented in Table 1.

Applications by whltea for Employment through Government
Labour Exchanges 1914-1940
Year Nder of Applications % of Economically Act,ive
White Population
1914 10626 2.2
1915 6973 1.4
1916 8527 1.7
1917 10602 2.1
1918 12250 2.4
1919 15577 3.0
1920 20708 3,9
1921 33729 6.2
1922 53396 9.6
1923 46699 8.2
1924 54600 9.4
1925 50993 8.6
1926 53583 8.9
1927 70459 11.4
1928 72114 11.4
1929 58154 9,o
1930 81042 12.4
1931 120021 17.9
1932 174442 25,5
1933 187924 27.0
1934 149516 21.0
1935 119218 16.4
1936 95888 12.9
1937 96784 12.8
1938 79985 10.4
1939 82200 10,5
1940 78325 9.8
Source: Official Yearbooks of the Union of South Africa 1910-1954 for
the number of applications, and various iasues of South African
Statistics for economically active White population.
Notes: 1) Applications were made to Government mployment Exchanges/
Government Labour Bureaux administered by the Department of
Mines (later Mines and Industries) in the period 1910 to
about 1925. Thereafter applications were made to central
Employment Exchanges and still later to General and Post
Office Exchanges, which was the same agency as the
'Government Employment Exchanges' but which from about the
micl-'twenties were administered by the Department of Iabour
and Soclal Welfare. From June 1925 certair. post offices in
rural areas also acted as employment exchanges on behalf of
the Department cf Labour and social Welfare. Later, and
although the precise date is not clear, certainly by 1945
magistrates' offices also acted as employment exchanges for
the Department of Labour.
21 The number of applications include monthly re-rrqistration
and apply to a whole year, rather than to a particular date.
The numbers thus exceed the number who were actually
unemployed at any time during each year.
31 In terms of the Registration of Employment Act No. 34 of
1945, it became compulsory for Whites to register as work=
seekers with the Department of Labour employment exchanqe.
In 1947 thls provision was extended to Coloureds and Asians
'The Act operated in conjunction with the Unemployment
Insurance Act of 1946 as amended. Since compulsory
registration may have affected the comparability of the prewar
with the post-war years (from 1945 to 19561 the latter
have been omitted from the table.

According to this particular indicator, the White unemployment rate rose
strongly, with only minor cyclical declines, from 2.4 per cent in 1918 to
11.4 per cent in 1928, before the Great Depression, and then despite a
drop in 1929, increased two and a half fold to a peak of 27 per cent in
1933. Nothwithstanding sharp declines thereafter, the unemployment rate
amongst Whites on the eve of the Second World War was still higher than it
had been in 1926, when the problem of poverty and unemployment was already
considered a serious one1). That these figures reflect a very real,
serious problem of unemployment amongst Whites which persisted over
virtually two decades, seems to be incontrovertible; and the possibility
of a protracted period of high and rising unemployment (whether one calls
it "cyclical" or "structural") is thus clear.
Data comparable with those for the inter-war years are not available for
the period since the Second World War. It is apparently not possible,
therefore, to determine precisely how high today's unemployment rates in
South Africa are, relative to the 'twenties and 'thirties, even in the
case of Whites. The rate of unemployment amongst Whites, Coloureds and
Asians, harever, is almoat certainly lower today than it was in the interwar
years, and, indeed, it seems from evidence presented below that it is
lower today than it was in 1961-1962, when it reached its highest level in
the post-war period. Nevertheless, since the mid-1970s various studies
have suggested not only that the unemployment rate in South Africa for the
population as a whole is high compared with other countries, but that
there is a tendency for it to rise secularly.
These findings have been the subject of much controversy and in the rest
of this section, therefore, we focus on the question whether the
unemployment rate in South Africa is in fact subject to a rising secular
trend.
The principal available estimates of unemployment for the South African
population as a whole for the past two decades are those of Charles
1) See, for instance, Hobart Houghton and Daqut (19731 for excerpts from
some contemporary analyses of the problem.

Simkins. His work is noteworthy partly because of its thoroughness and
technical sophistication, but also because it has been the chief focus of
criticism in the unemployment debate. He has published several sets of
estimates of the unemployment rate in South Africa, and the most recent of
these, revised in the light of new evidence1', are presented in Table
2. The table and figure indicate that after rising in the early sixties
the unemployment rate fell to its lowest level in 1967. Thereafter the
unemployment rate rose sharply in 1968. However, it declined somewhat
thereafter, and though rising to 18.9 per cent in 1972, was reduced by the
gold boom of 1973-75 to a level of only 16.2 per cent, that is only just
slightly higher than in 1967. It is, therefore, not clear that a secular
upward trend in the unemployment rate can be said to have set in by that
stage. However, the boom of 1973-75 was due to an unprecedented shock
originating abroad (the oil crisis, through its effect on the price of
gold), which may well have merely temporarily prevented the manifestation
of an underlying longer-term tendency for unemployment rates to rise.
For, at the end of this phase of strong cyclical expansion the overall
unemployment rate rises strongly to 21.1 per cent in 1979, remains at
about that level till 1981, but thereafter rises again in 1982 to a level
higher than any previously reached. This resumption of the rising trend
doubtless continues at least some way into 1983, as the current recession
deepens. Whether we see it as cyclical or secular therefore, we find that
the overall unemployment rate according to the general method used by
Simkins (1982 : 6). taking into account the recent adjustments referred to
above, has increased from 16.2 per cent in 1975 to about 22 per cent in
1982, and probably to a yet higher level in 1983.
1) These revised results are unpublished and have been kindly provided
to me in correspondence and in conversation. I am most grateful to
Charles Simkins for this, but he naturally bears no responsibility
for any errors which may be made here in adjusting his last published
estimates or in interpreting the evidence.

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There is not, to my knowledge, another comparable set of unemployment
estimates for all racial groups together for this period, which could be
used in an assessment of Simkins' results. Other notable contributions on
the measurement of unemployment in South Africa on a year by year basis
over the past two decades appear to have focussed mainly on non-White
unemployment. Amongst the most notable of these are the estimates of Lieb
Loots whose most recent results covering Africans, Asians and Coloureds
are presented in Table 3. Loots' estimates also reflect a persistent
tendency for the unemployment rate to increase from about 1974. Thus the
most recent estimates of both Simkins and Loota tend to confirm the
tendency revealed by their own earlier work, as well as studies by Sadie
(1976) and van der Merwe (1976)').
That there is in operation a persistent tendency for the unemployment rate
to rise, which is likely to continue into the future, is also suggested by
a recent Human Sciences Research Council study in which it was estimated
that in the period 1980 - 1985 the labour force would increase at a rate
of 290 000 per annum compared with an estimated rate of growth of the
demand for labour of 134 000 new jobs per annum, based on a rate of grovth
of GDP of some 4.5 per cent per annum2). Furthermore, since then the
Government has issued a White Paper on the problem in which it states that
the "fact that uneqloyment might tend to increase over the longer term,
is --- cause for great concern on the part of the Government, which
believes that dealing with these problems is a matter of high
priority").
1) Bromberger (1978 : 17). after surveying the work done up to that date,
states that "All workers agree on a rising trend in the 1970s".
Moreover Loots (1980 : 59) predicted that there would be little future
improvement, and in his 1982 study (p. 32) seems to accept the rising
trend quite unequivocally.
2) Terblanche, Jacobs and van Pletzen (1983 : 2-4). It should be noted
that their estimated average annual increase in the labour force of
290 000 between 1980 and 1985 suggests that Simkins' (1982:6)
estimated increase of 220 000 for 1981 (an increase of only 2.4 per
cent over 1980) is by no means excessive; and his employment increase
of 142 000 for 1981 exceeds the estimated annual increase of 134 000
for 1980-1985.
3) Government White Paper (1984 : 2).

Table 3
Black Unemployment in Smth Africa, 1960-1980
Year Iabour Force Employment Unemployment Rate
(OOOa) (000~) (000a) B
Source: Loots I1980 : 581 as reproduced in Loots (1982:33).
Notes -: (1) ''Black" here includes Coloureds, Asians and Africans.
(2) Includes Independent National States.

The evidence thus suggests a persistent underlying tendency for the
unemployment rate to rise, which has possibly been in operation since the
late 1960s, and almost certainly since 1974. There appears to be nothing
inherently implausible about the picture drawn by Simkins, Loots and
others and, indeed, as our discussion below suggests, it is consistent
with trends in the world economy as a whole.
Some International Comparisons
International comparisons suggest that the trend in overall unemployment
in South Africa is very much in keeping with what has happened abroad. It
is instructive, for instance, to compare movements in the unemployment
rate for 1960-1981 with the unemployment rate in the United Kingdom in the
period 1965-83 which are plotted in Figure 1 (the actual figures for the
UK being given in Table 4). The British unemployment rate, it will be
noted, shows a long upswing possibly beginning in the latter 1960s. but
more clearly in about 1974, continuing right through into the 1980s.
There are striking similarities between the South African and British
graphs, the most relevant of which is that they show very much the same
general upward trend from about 1970. The main difference is simply the
absolutely higher level of the South African unemployment rate1 ) .
Furthermore the British case is not a special one, significantly different
from other advanced industrial countries. The unemployment rate in
1) This is probably mainly due to the proportionately much larger amount
of structural, permanent unemployment, which is partly the result of
the peculiar structure of the South African labour market, including
such features as the migrant labour system.

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~i~~~~ 1: UNEMPLOYMENT PATES: UNITED KINGDOM AND SOUTH AFRICA
UNITE11 KINGDOM

virtually all OECD countries began to rise in the late 1960sr
movement accelerated from 1974 on in all of them (except Japan), with a
further marked acceleration from about 1980' ) .
the
1) See also Beenstock (1983 : 125) which shows the unemployment rate in
OECD countries collectively reaching its lowest post-war level in
1966, thereafter rising steeply but for brief and small cyclical
decreases. In addition to these OECD statistics, there is evidence
for individual countries, and Davenport (1982 : 39), for instance,
reports for Canada Canada, "an upvard drift in the unemployment rate
particularly after 1967". In the table the South African unemployment
rates of direct relevance for our present purposes are those drawn
from Table 2 above. The Current Population Survey estimates are
included ae well, simply because of the interesting contraet which
they make, and they are touched on again later.

Table 5:
Unemployment Rates in Scnne OECD Countries and South Africa in
Various Years from 1974 to 1983
United States
Japan
Germany
hance
United Kingdom
Italy
Canada
Belgium
Netherlands
Spain
South Africa
(1) SimLins
(2) Current
Population Survey
- Source:
Data for all countries except South Africa are from
OECD, Economic Outlook, various issues Table R12.
The South African estimates (1) are from Table 2
above and (2) are from Central Statistical Services,
Statistical News Releases, various issues.
- Note:
llle OECD rates are based on a standardised method
applied in all those countries, but naturally the
South African and OECD methods are not standardised.

One consequence of this is that by 1983 the percentage unemployment rates
in Canada (12.5). the Netherlandslands (12.91, the United Kingdom ( 13.5 ),
Belgium (14.1) and Spain (1 7,3) do not look nearly so low compared with
South Africa (21,l in 1981) as they did in 1974, before the big upsurge in
OECD unemployment rates l) .
Some have suggested that Simkina' estimates suffer from a lack of cyclical
sensitivity. Examination of Table 2 and the graph in Figure 1, hwever,
show clearly that they have been responsive to cyclical factors2).
The only feature of the data which may cause some misgivings on this score
is the fact that there is no significant absolute decline in the South
African unemployment rate during the economic upswing from 1978 to 1981,
even though there is a marked deceleration of the upward trend in 1979, a
minor absolute fall in 1980 and only a very slight increase in 1981 to the
1979 level. As we shall see belar there are good reasons for this, but in
any case the OECD data presented above suggest that the tendency for the
unemployment rate not to fall during an economic upswing is not something
peculiar to South Africa. A similar, persistent upward trend emerges in
the case of several other countries: Spanish unemployment rates go on
increasing throughout the OECD boom from 1976 to 1980, as do the French,
the Italian (but for a minor decrease in 1980) and the 6elgian3),
1) It is also noteworthy that the Spanish unemployment rate increases
from 2.4 per cent in 1970 to 16.6 per cent in 1982 whereas the South
African rate rose from 16,2 per cent in 1970 to 21.1 per cent in
1981, so that the Spanish rate not only rose proportionately more but
also by a larger number of percentage points. The magnitude of the
increase in the unemployment rate in this country is therefore not
out of line with experience elsewhere.
2) Figure 1, for instance, shows that from 1970 to 1977 the British and
South African unemployment rates move up and down together in more or
less perfect unison, so that over this period at least the South
African estimates are as cyclically sensitive as the British.
3) In several other cases the unemployment rate does not fall in all the
years of the cyclical upswing of the latter 1970s.

Thue in a number of other countries the long-term upward trend in the
unemployment rate seems to predominate over cyclical factors so that
unemployment rates do not come darn during cyclical recoveries.
The international comparisons made here cannot, naturally, provide
conclusive suppart for the picture drawn by Simkins, Loots and others,
despite the striking similarities between the South African and OECD
experience as outlined above. They do, however, serve several important
purposes: First, they suggest that there is no prima facie reason why
Simkins' and Loots' methods of estimation (despite the particularly
difficult problems of determining the true, absolute level of
unemployment) should, when it comes to indicating cyclical and secular
movements, be treated with any more mistrust than the methods used to
calculate OECD unemployment' rates, nor any reason why they should not be
as readily accepted. Second, they suggest that movements in the
unemployment rate in South Africa and abroad have probably to a
significant extent been governed by common influences, and (of particular
importance for South African policy purposes) that the forces determining
movements in the unemployment rate in South Africa to a large extent
originate abroad. The existence as well, perhaps, as the causes of the
persistent upward trend in Black unemployment rates in South Africa may
lie, therefore, in the same factors which have produced the clear, rising
trend in unemployment rates in OECD countries, at least since 1974, and
which have prevented an absolute decline in unemployment rates during
times of cyclical expansion in several of those countries.

The Overall Unemployment Rate Conpared with Registered Unemployment
Figure 2 shows the South African unemployment rates for all four racial
groups together for 1960-1981 once again, together with the rate of
registered unemployment amongst Asians, Coloureds and Whites (that is, the
number registered as unemployed as a percentage of their combined
economically active population) for the period 1948 to 1983. The figure
seems to show a long-term declining rate of registered unemployment
amongst Asians, Coloureds and Whites from about 1961 on, but several more
detailed features of the graph should be noted: The rate of registered
unemployment reaches its lowest post-war level in 1974 after a long,
thirteen year falling trend. Thereafter it rises to a level in 1978 which
is higher than at any time since 1962, falls during the 1978-81 boom, but
to a level still significantly higher in 1981 than it was in 1974, and
then rises in 1983 to a level slightly in excess of that in the trough of
the last recession in 1978. After a long decline in the registered
unemployment rate from 1961 to 1974, therefore, it appears that for nearly
a decade now an upward trend in this unemployment rate may well have been
in operation. Despite the divergence of the aggregate and non-Black
unemployment rate graphs in Figure 2 during the years 1978 to 1981, the
problem of rising unemployment in South Africa today is perhaps not as
exclusively "a Black picture" as it at one time seemed.
The evidence suggests that the reasons for the observed upward trend in
the South African unemployment rate lie not in some basic flaw in methods
of estimation, but in some real and fundamental change in the South
African economy. The movements over time in both the overall and non-Black
unemployment rates, it will be suggested below, are readily understood in
much the same terms, and even their conapicious divergence from 1978 to
1981, shown in Figure 2, does not cast any serious doubt on the
macrc-estimates discussed above. So far as the earlier relative movements
of the two graphs in Figure 2 are concerned, it is also very striking that
from 1970 right through to 1978 movements in the Black and non-Black
unemployment rates (albeit very differently measured) are more or less
perfectly synchronized. In view of these facts, together with the
similarly close parallel between the two graphs in Figure 1 from 1970 to

Table 6
Registered Unemployment Rates among Asians. Coloureds and Whites
in South Africa 1948-1983
- Year
Economically
Registered Active Percentage
Unemployment Population Unemployed
(GSOs)
- Source: Various issues of South African Statistics and Quarterly Bulletin of
Statistics.
- Notes: Economically active population figures have been obtained by
interpolation of Population Census data.

1977, and the clear upward trend in unemployment rates in OECD countries
and mngst non-Blacks in South Africa from 1974 on, the case for seeking
to explain the peculiarities of the movement in South African unemployment
rates in structural term seems to be very etrong.
In the light of the evidence considered above, this section is devoted to
consideration of various possible explanations of the problem of
unemployment in South Africa. Much of the discussion we shall find,
hovever, has further implications for the problem of definition and
meaeurant, and we are therefore by no means done with the question of
the validity of alternative measures.
(1) The evidence suggests that the rising trend in unemployment rates has
to do primarily with a fall in the rate of growth of the demand for
labour rather than with any eiqnificant shifts in supply'). The
rates of growth of non-agricultural employment and of population, by
racial group, are summarized by five year intervals in Table 72).
1) That is, as we shall see below, it does not appear to be plausible to
attribute the rising unemployment rates to shifts in supply related
to changes in the rate of growth of the etonomically active
population or to a voluntary withholding of labour services by
workers, resulting either from short-term influences (such as
inflation) or longer term institutional factors (such as the social
security system, land-ownership in the homelands etc.) affecting the
incentive to accept jobs.
2) In our present discussion the population growth rate is for
eimplicity used ae an approximate index of the long-run rate of
growth of the labour force, our main purpose here being to illustrate
the eiqnificance of declining rates of growth of the demand for
labour. Aleo, becauee of the more problematical nature of estimates
of employment - - in commerce and services, we use employment - - in the four
non-agricultural sectors - mining and quarrying, manufacturing,
electricity and construction - for which there are reliable loncr
time-series employment data, as an index of employment in the
non-agricultural sectors in general. Certain possible problems with
thim procedure are referred to below.

Table 7
Non-Agricultural Employment and Population Growth Rates
(Average Annual %)
Non-agricul=
tural Employment Population Growth Rates
Total
Non-
(A11 races) Blacks Whites Coloureds Asians Blacks
Source: Various issues of South African Statistics and Quarterly
Bulletin of Statistics.
Notes: 1. Non-Agricultural Employment is the sum of employment
in mining, quarrying, manufacturing, construction and
electricity.
2. The non-Black population growth rate is the rate of
growth of the combined White, Coloured and African
population.
3. 1980-1983 is the 2.75 year period from June 1980 to
March 1983.

The table shows that in the period 1975-80, indeed for the first five
year interval since 1955-60, the Asian, Coloured and White population
combined grew more rapidly than non-agricultural employment, and this
state of affairs continued to hold to an even more marked degree in
the period 1980-83. This came about as a result of a long-term
decline in the rate of growth of employment and despite a fall in the
rate of growth of the non-Black population. In the case of Blacks,
the population growth rate exceeded the non-agricultural employment
growth rate not only in 1955-60, 1975-80 and 1980-83, but in the
period 1965-70 as well. This is clearly due to the fact that the
Black population growth rate was at its peak in the late 1960s and
exceeded the non-Black population growth rate by a considerable
margin. Thus the Black unemployment rate (which obviously
predominates in the all races unemployment rate) seems to reach its
lowest point in the late 1960s (though it falls very nearly to this
level again by 1974). This occurs several years before the low point
in the non-Black unemployment rate, for the simple reason that the
employment growth rate in its declining trend drops below the Black
population growth rate earlier than it falls below the non-Dlack
population growth rate.
The relationship between population growth, non-agricultural
employment growth and unemployment rates is depicted in more detail
in Figure 3. It is clear from comparison of the cyclical trough
years of 1960, 1972, 1978 and 1983, for instance, that there has been
a protracted decline in the rate of growth of non-agricultural
employment, checked somewhat but only temporarily, by the gold boom
of 1973-1974. Up to the mid-1970s this was accompanied by a
declining non-Black unemployment rate, since, though the employment
growth rate was declining it still exceeded non-alack population
growth. The situation changed sharply from 1975 on, however, and it
is noteworthy that in five of the nine years from 1975 to 1983 the
employment growth rate was belw the non-Black population growth
rate, whereas this occurred only once in the twelve years between
1962 and 1974".
1) Alao in two other years in the period since 1975, namely 1976 and
1979, employment growth exceeded non-Black population growth by only
a small margin, whereas this was the case in only one year in the
longer period from 1962 to 1974.

In the case of Blacks, employment growth falls short of population
growth in three years (1966 to 1968) in the period 1962 to
1974'). However. in the next nine years after 1974 total
employment growth falls short of the Black population growth rate in
no less than seven years, the only exceptions being 1980 and 1981
when in any case, as the figure shows, the excess of employment over
population growth was very slight.
In viev of this, it is not surprising that the overall unemployment
rate does not decrease in absolute terms from 1979 to 1981 (except
for the short-lived decrease in 19801, whereas the rate of registered
unemployment amongst Asians, Coloureds and Whites did show a
significant decline over these years. Thus the fact that the allraces
and non-Black unemployment rates diverge during the boom of
1979-81 is quite understandable and does not cast doubt on the
macro-estimates2'.
Furthermore, it is clear from our discussion that the crux of the
problem of unemployment in South Africa is a long decline in the
employment growth rate, as a result primarily of a decline in the
rate of growth of the demand for labour. Indeed, as Figure 3 shows,
in the nine year period from 1975 to 1983 the employment growth rate
was negative by a substantial amount in fobr years: 1977, 1978, 1982
and 1983, whereas previously (comparatively small) negative growth
1) It is probably for this reason then that the all races unemployment
rate, which is dominated by Black unemployment, reaches its lowest
level in 1967 and rises sharply in 1968, whereas the registered
unemployment rate continues to fall right through to 1974.
2) Also relevant is the fact that the rate of growth of Black nonagricultural
employment was actually less than the rate applying to
all races together. Indeed, in 16 of the 23 years since 1960 the
rate of growth of non-agricultural employment was greater for
non-Blacks than for Blacks. Furthermore, since a much larger
proportion of Blacks than of non-Blacks is in agriculture, in which
employment growth is exceedingly slow, the overall rate of employment
growth (including agriculture) is likely to be smaller for Blacks for
this reason, apart from any other.

ates had been recorded only in 1956 and 1972. Alao, the employment
growth peaks of 1980 and 1981 were clearly much lover than earlier
peaks. Indeed, in terms of employment growth the upswing of 1979-81
was the weakest cyclical bmm since the upswing of 1956-1959.
TO put these results in absolute terms, the four non-agricultural
sectors with which we have been dealing provided Blacks with an extra
380 000 jobs between 1970 and 1982, that is, only some 32 000 per
annum. Taking into account the rest of the non-agricultural sectors
(trade, transport and communication, finance and insurance, and
servicesl, it appears that total non-agricultural employment
increased by 724 700 over this twelve year period, that ia, by about
60 000 per annum. Compared with this the Black labour supply
increased by an estimated 1487000 between 1970 and 1982, that is, by
about 125 000 per annum.
What is absolutely clear from the evidence considered above is that
there has been a very marked decline in the rate of growth of fo-1
sector, non-agricultural, employment, and we interpret thia as a
marked decline in the demand for labour in these formal, nonagricultural
sectors. Furthermore, we have suggested that the
movements in the unemployment rate are consistent with the
relationship between formal, non-agricultural employment growth and
population growth rates illustrated in Figure 3.
ii) 'Ihe long-term rising trend in the unemployment rate thus has to do
with a fall in the rate of growth in the demand for labour, rather
than with any shift in labour supply. But the question remains, what
produced the slowdown in the demand for labour? There are various
possibilities, but one very widespread and important view is that it
is largely due to factor-market distortions which, by lowering the
cost of using capital equipment relative to the cost of using labour,
encourage the substitution of capital for labour, thereby reducing
the demand for labour. Prominent amongst these distortions are
overvalued exchange rates and low real interest rates, due to

governwant intervention in foreign exchange and capital markets, as
well as to high rates of inflation resulting from excessive increases
in the money supply. The view that factor market distortions are
essential to the problem is the central theme of the recent
Government White Paper "A Strategy for the Creation of Employment
Opportunities", which attributes it largely to "the control of
interest rates in general, the direct or indirect subsidising of
certain interest rates and generous tax concessions on certain types
of investment"; to "artifically increased" wage rates (p. 7); and to
overvalued exchange rates. Following the recornendations of the
National Manpower Comission and the Econanic Advisory Council the
Government thus declares its intention "to continue the elimination
of measures which directly or indirectly distort the relative prices
of production factors and to follow a market oriented policy
regarding interest rates, wages and salaries, prices and the exchange
rate" (p. 9).
In this section we shall deal mainly with the view that unduly low
interest rates are a significant basic cause of the problem, though
the discusion will exemplify some of the shortcomings of the
prevalent emphasis on factor market distortions in general. The
exponents of this view generally fail to observe that a decrease in
real interest rates due to an increase .in the supply of loanable
funds has two effects. One is the & effect which refers to the
fact that lower interest rates, by increasing the net rate of return
to investment, encourage an increase in the capital stock and so also
the scale of output, thus increasing the demand for complementary
factors of production, including labour. The scale effect of low
real interest rates therefore, is conducive to employment growth.
The other effect, the proportions effect, refers to the fact that a
fall in real interest rates provides an incentive to substitute
capital for labour (that is, to change the proportions in which
factors are used), and this tends to reduce the demand for labour.

So far as short-term, cyclical movements are concerned, the real
interest rate and the rate of growth of non-agricultural employment
have tended to move inversely. Thus when the real interest rate
rises from 1959 to 1962 the rate of grwth of employment is lw,
whereas when it falls from 1963 to 1965 the employment growth rate
soars. Further, the sharp decline in employment growth in 1966-68 is
accompanied by an equally sharp increaae in real interest rates; and
similarly the drop in interest rates in the cyclical booms of both
1973-74 and 1979-81 are mirrored in increasing employment growth
rates (See Table 8)'). Cyclically, therefore, it seems that the
scale effect has predominated, and this is only to be expected aince
in South Africa economic upswings tend to be accompanied by a
favourable balance of payments and (especially in the 1970s) by
large increases in the gold price, which bring lower interest rates.
It is only when we look at the lonq-term evidence that the
proportions effect of low interest rates seems to predominate. The
real interest rate declines sharply after 1968, at about the same
time as the long upward trend in the Black unemployment rate
commences, becomes negative in 1973 (for the first time since 1952)
and remains negative for all years, except 1978, till 1982~). To
what extent is the low rate of employment grovth in the 'seventies
due to a tendency to substitute capital for labour due to these low
real intereat rates?
Table 9 shows the average values of the real interest (government
hond) rate, and of a number of variables in manufacturing industry
for five-year intervals from 1960 to 1980. It appears from the table
that the rate of growth of manufacturing employment in the period
1975-80 was 5.39 percentage points lower than in 1960-65. This,
1) The recession of 1976-78 is similarly characterised by rising
interest rates though they remain negative for most of the time.
2) Also, the inflation rate begins a lonq-term rising trend in 1969,
which more less exactly mirrors the movements in the real interest
rate.

Real Intwraat Rats and Rats of Increaee in Non-Aqricultural
Employment 1952-1963
Real Intereat Bate
Increase In Son-
Agricultural Employment
1953 1 .OO 0.41
1954 2.60 4,70
1955 1.30 3,79
1956 3.59 - 0,49
1957 1.85 0.72
1958 1.65 2.28
1959 3.10 3.75
1960 3.79 0,32
1961 3.77 1,48
1962 4,19 ?,i?
1963 3.35 3,82
1964 2.27 8,87
1965 1.60 7,qfl
1966 2.55 3,33
1967 3.10 2.64
1968 4.40 1,45
1969 3.30 3,Y3
1970 2.95 4,37
1971 2,78 3.07
1972 1,85 - !I.?>
1973 1.57 :3,;j
1974 - 2.74 F,R3
1975 - 3.79 5.96
1976 0.82 :,;I
1977 - 0,24 -. ;,?'I
1978 0.29 .- 2,:\3
1979 3.41 2.21
1980 4.10 3.82
1981 - 2.64 I,hO
1982 - 0.51 - 0.33
1983 - 0.26 - 3,bb
Somrc.ml (1) RDliMl inters.+ rates (Government Band Yield,:
Intornational Mnstary Pund, Internatronal - Finenclal
SUtietice, Yssrbmk 1982 and March 1984.
cerest
(2) Cons-r price indi4am: South African Reservc aank,
W u l y Bulletilcaxb6aue issuee.
13) Increase in non-agricultural employment: south African
SUtistic~ 1982, p. 7.4 for yeare 1952-1981; Quarterly
Bulletin of Statimtice for 1982 and 1983.
- IIOCml mm rul intmr*at rate ia th. nominal government bond yield less
th. imYY in th. consmer price index for each year.

however, primarily reflects a reduction in the rate of qrowth of the
general scale of the economy rather than a substitution of capital
for labour. Indeed, comparing these two five year periods, the
decline in the employment growth rate was associated with a falling
rate of growth of both output and capital stock in nanufacturing
industry. The rate of grath of the fixed capital stock fell by 3.26
percentage points whereas the rate of increase of capital intensity,
as measured by the capital/labour ratio (Kfi), increased by 1.55
percentage pints; and as measured by the capital/autput ratio (X/Y)
it rose by only 0.65 percentage points. lhus wa find that our
troubles stem from the fact that negative and real interest rates are
associated with slw economic qrovth, and not prinuily with the
substitution of capital for lamur due to factor market
distortions1 )
In so far as K/Y and K/L did rise it cannot be assumed that this was
entirely due to lower interest rates2). Partly they would have
tended to rise simply because of the emergence of a good deal of
excess productive capacity in the protracted recession frm 1975
on3). Partly too it may have been due to a shift of investment
resources into highly capital-intensive energy products such am the
expansion of SASOL's output capacity, that is to intersectoral
shifts in the distribution of investment rather than to chanqes in
production methods within sectors. And to some extent, too, the
rising rates of increase of K/Y and Kfi might have been completely
1) Davenport (1982) finds that the rise in the Canadian unemployment
rate between 1973 and 1981 was "entirely due to the slovdom in the
growth of output capacity", but as a measure of capital-intensity he
focusses only on K/Y and does not indicate to what extent Kfi
increased.
2) It is notevorthy that most of the increase in the growth rate of KfL
occurred between 1965 and 1970, and it rose comparatively slowly
thereafter when interest rates were at their lwest.
3) See Davenpart (1982)

Table 9
Real Interest Rates and Average Annual Changes of Certain Variables
in Uanufacturing Industry:
Historical Averages
(Ll (Y) (K) (K/LI
Real Fixed Capital
Intereat Employ= Produc= Capital Stock per
Rate men t tion Stock Worker
\a. $ *.a. \ p.a.
(K/Y 1
Capital
stock
per Unit/
output
- Source: South African Reserve Bank, A Statistical Presentation --
of South Africa's National ~ccount; for the Period -- 1946
to 1980, Supplement to Narterly Bulletin, September
1981, and various issues of South African Statistics.
Note:
The real interest rate is the nominal government bond
rate deflated by the South African consumer price
index with base year 1975.

autonomous and largely independent of changes in relative factor
prices1 )
To see why slow growth and low real interest rates have been
associated, it is important to consider why real interest ratee have
become negative in the first place and turned dam sharply after
1973. Some take it that the real interest rate fell simply because
the rate of inflation rose rose sharply. However, it is arguable
that real interest rates fell, right round the world, due largely to
an autonomous fall in the profitability investment and hence in the
demand for investment funds; and this decline in profitability was
largely connected with rising primary product prices, relative to
manufactures in the late 1960s. and from 1973 on especially with
rising energy prices2). This would clearly have reduced the use
of energy, but also, by reducing the marginal productivity of other
inputs, the demand for capital and labour as well. Thus rather than
slow employment growth being caused by high inflation rates and low
real interest rates, these are likely to have been the consequence,
together with slow economic growth, of a number of exogenous shocks
such as the massive increases in energy prices. This explanation of
the fall in real interest rates suggests that even if the decline in
interest rates did contribute in some measure to the rising rate of
growth of K h there was little the authorities would have been able
to do to prevent them from falling.
iii) The upshot of our argument ia aections (i) and (ii) is that the
predominant cause of rising Black and non-Black unemployment rates
has been a decline in the rate of growth of the demand for labour and
that this has been due primarily to a fall in the rate of economic
1) In some measure, too, it is possible that regional policy, especially
direct controls on the use of Black labour in terns of Section 3 of
the Physical Planning Act may be responsible for the increasing rate
of growth of the K/L ratio.
2) See Wilcox (1983).

grawth in general rather than to an increase in the capitalintensity
of production. The perhaps yet more basic problem remains,
however, of deciding what forces have been responsible for the
decline in economic growth rates in the late 1960s and early 1970s.
This is a difficult and controversial issue but clearly it is one
vhich cannot be side-stepped if we seriouely wish to come to grips
with the questions such as whether South African unemployment is
lon~term or cyclical, structural or transitional, voluntary or
involuntary etc.
It raises the whole difficult question of the
nature and causes of business cycles, in particular of lon~swings in
the level and rate of expansion of economic activity1)
This is clearly no place to attempt a full-scale analysis of this
issue, and the main purpose in raising it here is to emphasize the
kind of factors vhich seem most relevant. Since, as we have argued,
the problem of rising unemployment rates is a worldwide one, we must
clearly take into account some of the factors which have been
operating at a global level, even though this does not mean that
there are not considerations peculiar to South Africa, or that south
African conditions do not call for distinctive policy responses which
are significantly shaped by these conditions.
The three major forces underlying the long global downswing are:
(a) The rise in raw materials prices from the mid-sixties, with the
increase in the price of oil in 1973 and 1971 being only the most
dramatic manifestations of the problem; (b) The slowing down of
the process of diffusion of technology from advanced industrial
countries to industrialising Third World countries, which had been
underway for a considerable period of time2). (c) The downward
1) Whether one regards It as cyclical or not, what seems clear is that
the economic decline beginning between 1968 and 1973 has already gone
on for a whole decade and shows no signs of ending.
2) This may also be seen as the end of a Schumpeterian, innovative
upsving which had been in progress for Borne time.

pressure on the relative price of manufacturers due to the rapidly
increasing productivity and hence international competitiveness of
the "newly industrializing countries" and Japan, which also assumed
major proportions in the late 1960s').
These factors depressed profitability in manufacturing industry, and
produced a severe problem of adjustment in the advanced industrial
countries. The same three global forces have also influenced South
Africa, both directly and through their effect on the economies of
the advanced industrial countries, slowing down economic growth and
increasing unemployment rates here as they have done abroad. Their
impact has been alleviated to some extent in the South African case
by the expansionary or spending effects of two major gold bmms, but
at the same time, by raising the foreign exchange value of the Rand
these booms have worsened the competitive position of South African
goods, especially of manufacturers, vis-2-vis foreign produced goods.
Thus these booms have not been an unmixed blessing as regards the
expansion of output and employment in traded goods sectors.
In addition to this, political developments in Southern Africa in the
past decade have also been unfavourable to private investment by
business firms, and though both domestic and foreign capital will,
naturally, continue to display cyclical movements, political
considerations and the increasingly obvious desire to diversify
investment portfolios internationally may well also have a
longer-term effect.
The above clearly does not represent a full scale analysis of the
determinants of South African growth rates in the past decade, but it
outlines the essentials of the view taken in this study, after
careful consideration of these and other alternatives. The necessity
of considering the causes of the long downswing in the South African
economy, and of taking a view on the matter, in dealing with the
question of unemployment in South Africa, would seem to go without
saying. It is not possible sensibly to deal with the question
1) See Beenstock (1983) for discussion of these problems.

hetbr th. unemployment in voluntary or involuntary, cyclical or
ntnuztur.1. natural or unnatural, without recognizing that there has
in fact boon a long downswing (whether or not it vill continue into
the future1 in the rate of growth of the South African economy, and
having aara notion of its causes. For these matters cannot usefully
be dimwned airply in tho abntract, if we are bent on understanding
the particular concrete cane of South Africa. They are clearly also
vital in deciding on the moat appropriate meaaures for dealing with
unemploymant in thin country.
is) In the light of thm above let us conaider the question, which has
benn prdnrnt in the South African debate, whether involuntary
-lopant can exiat in the long-term. Some exponents of the nev
cknnical nchwl appear to nay that long-run involuntary unemployment
ia thwretically imponaible and hence cannot exist in the longrural).
Ihua th. renponae to any evidence that the unemployment
rat. in riaing necularly tend. to be either that the evidence is
flmd (perhpa railacting falling labour market participation
raten), or if the riming unemployment trend in accepted, that this
mat reflect rising voluntary unemployment. In other words, it is
ilplied that any perniatent increase in the unemployment rate must be
d m to a rining 'natural' rate of unemployment, the rate of unemploy
-t, in effect, which im conniatent with 'full empl~yment'~~.
Thin v im on the theoretical impossibility of long-term (as diatinct
fra cyclical or trannitionall involuntary unemployment would seem
1) The main exceptioru allowed by them (apart f rm very special cases.
involving eluticitien of aupply and demand for labour) would seem to
k unqloyment due to intervention in the market by government,
trada union. etc. Since they tend implicitly to define involuntary
unamployment an unemployment due to the failure of the labour market
to clear; for reanonn intrinsic to the market itself (rather than
kcaune of government or trade union intervention), however, thin
tend. not to ba regarded an involuntary unemployment.
1) It in thua seen an involving a ateady redefinition of the
u~lployment rate consintent with full employment.

to call for qualification. Let us say that an economy is subject to
a single exogenous shock, in the form of higher energy prices or a
sudden burst of intensified competition from foreign producers of
mhnufactured goods and that this necessitates substantial structural
change. The adjustment to such a single external shock might be
exceedingly protracted.
It may for instance, ;quire substantial retraining of the labour
force; a reallocation of labour among different skill levele (both
upwards and - in the case of workers too old or otherwise unfit to be
retrained for other skilled jobs - downwards) and among different
sectors and regions;
a reallocation of investment resources away
from industries making intensive use of energy and twards energy
producing sectors, and a general alteration of the structure of the
stock of productive capital.
Also for various good reasons (not
simply because of government intervention or the unreasonable
stubborness of workers) relative and absolute levels of real wages
may be inflexible1 ) .
Furthermore, it should be noted that in the middle of a period of
prolonged stagnation in the world economy even thoroughgoing
competition domestically in a particular national economy will not
necessarily ensure movement towards full employment. For contrary to
widespread opinion, the price and wage elasticities of demand for
goods and labour respectively may be very low even in the case of a
small, open economy, in certain world economic conditions. Sometimes
1) For instance it may be necessary for some skilled workers thrown out
of their jobs to offer themselves at substantially reduced rates of
pay in the unskilled labour market in order for markets to "clear":
they may not readily do this and, perhaps rightly. society may not
expect them to do so. Also the elasticity of the demand for labour
may be so lar, taking into account the adverse effect of general wage
cuts on the demand for goods and services, that the new equilibrium
wage levels may require a decrease in the real wage bill accruing to
workers as a whole. In these circumstances they may be expected to
resist wage reductions determinedly (See Solow (1980) on this and
other issues pertinent to our discussion).

it is argued that for a small open economy like ours, the export
demand for South African traded goods is perfectly elastic at world
prices. Thus if production costs are brought down even fractionally
relative to other countries we could increase our export sales in
foreign marketa to an almost limitless extent. Because our exports
are small relative to the imports of, say, the United States,
producers in the CIS would not attempt to block importation of our
goods Consequently tough anti-inflationary monetary and fiscal
policies, devaluations, and wage restraint are called for and must.
work. While this may be true in buoyant world economic conditions,
under present conditions, which have prevailed for some years now,
even quite small countries in effect become big countries". In
a world with considerable excess production capacity in
manufacturing, any increase in South African exports is likely to
provoke a sharp reaction from both United States business firms and
from the US authorities, and indeed such a reaction has been
forthcoming over several South African exports, notably, but by no
means only, steel. Furthermore, it is obviously not possible for all
countries to increase their exports and employment levels by cutting
their wage ratea and prices or by devaluing their currencies. Thus,
in these circumstances, even a one-off shock may give rise to
persistently high levels of unemployment.
Furthermore, it is clear that an economy may be subjected to repeated
shocks all moving the economy in the same downward direction. Thus
it may be unable to adjust to any of these unfavourable events before
the arrival of the next, even with a system of prices which by
historical standards is as flexible and competitive as can be
expected. This is what appears to have happened in the OECD
countries and in South Africa over the past decade. In this case any
conclusions regarding the possibility of long-term rising,
involuntary unemployment, based on comparative static analysis, or
analysis aaauming short-run cyclical movements only is inadequate.
In view of this and a decade of rising unemployment rates, it is
1) See Streeten (1982).

eside the point to argue that
theoretically inconceivable in the long-run.
involuntary unemployment is
(v) There is, thus, no theoretical or empirical reason for thinking that
the rising rate of unemployment in South Africa does not reflect a
rising rate of involuntary unemployment. In any case, however, it is
arguable that the question of whether unemployment is voluntary or
involuntary is not of any great significance for our purposes. We
consider (a) the question of distinguishing voluntary and involuntary
unemployment at a particular point in time, and then (b) the
relevance of the distinction in the case of long-term trends.
(a) It is clear that in a sense that at any particular point in the some
unemployment and underemployment in South Africa, perhaps even a
significant part of it, is voluntary.
Bromberqer (1978: 18) suggests
that amongst the kinds of unemployment which may be regarded as
voluntary are some related to cultural factors and he refers
particularly to the need
to consider the "disutilities and
opportunity costs of going out to work from the honelands (at least
for some people at some times) and to set against these the very low
remuneration available (at least historically) in agriculture and
mining";
and to "the system of deferred payment operated by the
mining industry which arranges income transfers across time and so
finances restinq after a period of work (or social maintenance . . .
. . . " 1).
It is with this kind of 'voluntary' unemployment that Bell (1972)
deals in developing a graphical analysis of the optimal division of
the migrant's time between "time in wage employment" and "time spent
in the rural home', and which is also the main subject of a paper,
dealing specifically with unemployment, by Knight (1981). The
1) Bromberger is careful, however, to mention the need to emphasize the
constraints operating on some Black work choices and the peculiar
nature of the options available.

imzlO.ion of this form of voluntary unenployment is doubtlcsa one
rvum for the highor rates of unapl-ent
f a d here, by Simkins
fox &StMco, C-ad with Ewmp and North Imerica. If it were
oxclwied (an it ia by the Current Poplation Survey) the absolute
1.~01 of unqloymsnt wuld naturally be lar, and the Black
u-loylant
rat0 in South Africa would "mare more favourably with
that of non-Blacks hore as well am with unamployment rates in other
cmmtriom. Tho wstion, thorefor., arise. whether this type of
YI).qlm-t ahmld ba orittad for tho purpose. of measuring ths
hlut. 1ov.1
of tho w loymmt rate Ln South Africa.
It .hnld ba mt.d, h-cr, that such parids of 'voluntary' rest by
liwauu y fr-up job. in rFnlnq for other dgrants. rho night
o+honiao have pried. of uriorcod r0.t
to tho lack of job vauncio..
eont as .bring a pol of job.,
or longrr prlods of rest due
mat ia, dgrants may be seen to some
of a more or less fixed sire, by
-illatinq b.- tam and country. l%us, for instance, the
mNn.ion of th. pried of s-ice
contracts on the minos may well
-0 e-i&r&l. hardmhip to thoaa waiting in the resarvea for
their turn to work.
men in the case of the unqloysent due tc such
p.~iods of rut, threforo, the grounds for calling it 'voluntary'
U. not C1.IP-"st.
oLrilar pmbla rould me-
to present itself In the case of a
.0fllmr who is wlwlqod in the halands b.cawo the besr rare of
pmy in job. avdllbls to h h thora i. R30 per weak compared with.
..y, tho rat.
of RID0 in jobs in tam for pareons of his level af
.kill (whoro h. my prrvi-ly have worked). Should we aay that he
is wluntarily -1q-d and that his case at least is not part of a
mocln1 ptvbla of u~uvl-ent and shld thermfore not be lncluded
-
in tho -UF. of -1oy.mt7 If we do rsssrd this as 'voluntary'
m-1-t, &d wa tsk. tho .- view if the waqa svailabla in
tb. bland uu n10 per forty hour week. or would society then
say UYt hi. rofl~al of work at thim rate W ~ B justified. and that his
-LOJIQt
shoold b. reqarded se involuntary and thus as genuine
~ l - t ? It i m clearly quite pxsihle that we mould reqard

unemployment in the first case as voluntary and not want to include
it in the measure of unemployment, or if it was so included, that we
would wish to qualify any finding of a high unemployment rate, for
this reason.
We would possibly regard the second case however as
involuntary and wish to include it in the measure of
unemployment' ) .
What should be clear from this and the previous example of migrants
'resting' in the rural home, is that any estimate of the absolute
level of unemployment is closely connected with the problem of
distinguishing voluntary and involuntary unemployment and that
decisions on both these issues axe essentially arbitrary. Tney
involve definitional matters and since all definitions are arbitrary
there is no way of devising a 'scientific', true measure of the
absolute level of unemployment at a particular point in time, or of
the way in which unemployment is divided between voluntary and
involuntary. Tnis arbitrariness on its own is not a conclusive
argument against trying to develop a satisfactory measure of the
absolute level of unemployment. If the task was considered important
enough we would simply have to adopt some convention and make our
case for the measure chosen.
(b) In view of the difficulties outlined it is perhaps just as well that
the taek of measuring the true, absolute level of unemployment does
not seem in itself to be of the highest importance. In some
circumstances the absolute level of unemployment may have political
- -
11 A similarly arbitrary decision would have to be made as to whether a
job providing only five hours employment per week should be regarded
as a full job equivalent to a forty hours per week job in the formal
sector (as the Current Population Survey estimates assume is the
case); or whether the dividing line should be ten hours, twenty
hours etc.
See, for instance, the very nice study of the Coloured
ccmmnity of Bishop Lavis, Cape Tom by Blau, Thomas g g 1982,
which indicates how measured unemployment rates vary depending on
whether the narrow definition of the Current Population Survey, or a
broader one taking into account underemployment as well, is applied.

significance1). However, the finding by some studies in the
mid-1970s that the unemployment rate was high in an absolute sense
would probably have aroused comparatively little interest if it had
at the same time been agreed that the unemployment rate was falling
rather than rising.
What is therefore, more important both for political reasons. and
simply as a major indicator of whether the wellbeing of the community
is improving or deteriorating, is the movement of the unemployment
rate over time. Thus it is the cyclical and secular movement in the
unemployment rate which most needs to be understood, and, if
possible, controlled2).
Let us, therefore, now briefly consider the relevance of the
distinction between voluntary and involuntary unemployment for the
observed trend in the unemployment rate. Say that despite all the
obstacles outlined above a full employment equilibrium is eventually
reached. What of those who remain unemployed in the new long-run
equilibrium? %at, for instance, of a person who, originally
retrenched due to recession, turns down a job in the long-term
1) For instance, high Black unemployment rates compared with Asians,
Coloureds and Blacks, or with foreign countries may be relevant in
the "engagement-disengagement" debate. AnothOr important need to
measure the absolute level of unemployment at a particular point in
time, and to know something of its character, would arise if a
government were contemplating the introduction of a non-contributory
unemployment insurance and it therefore wished to work out the
budgetary implications of doing so.
2) Despite this, and the basic problem of arbitrariness, much of the
debate on unemployment in South Africa has been about the static
issue of the absolute level of the unemployment rate, and hence
implicitly about the causes of unemployment at a point of time.
Implicitly it has largely dealt with the question of the nature and
extent of unemployment in full, long-run equilibrium rather than with
the explanation of cyclical and secular movements.

equilibrium situation, reached eventually after a long period of
adjustment. Say after adjustment to the deflationary shock,
individuals vho vould have othervise have been offered and vould have
accepted jobs, decline inferior jobs because they consider it
unsuited to their ability, because it entails shift-vork, because
transport costs are too high, because it is too far avay, or, in the
case of homelands dvellers, because the return to vorking the land
vas simply not considered vorth the effort. Should such vorkers be
regarded as underemployed, voluntarily unemployed or involuntarily
unemployed7 A prevalent viev is that the vorker is voluntarily
unemployed and that this is therefore not a problem of unemployment.
Our description of this case, hovever, shovs that even such an
increase in voluntary unemployment represents a deterioration in the
community's vell-being, and that contrary to the impression the term
"voluntary" gives, represents a real social problem originating in a
decline in the availability of employment1). Thus rising longrun
unemployment rates, vhether seen as involuntary, or as involving
a rising natural rate of unemployment, and therefore voluntary, may
represent a real social problem of unemployment. Whether ve choose
to label it 'voluntary' or 'involuntary', therefore, is irrelevant.
In current economic conditions, and taking into account the basic
underlying forces bringing it about, a rising index of unemployment
reflects a problem vhich may perfectly reasonably be called a problem
of unemployment2).
1) We may, therefore, perhaps equally appropriately call it a problem of
"employment" rather than one of "unemployment". What is essential,
hovever, is that vhichever term ve use a rising unemployment rate
repreaents the vorsening of a real social problem.
2) It might be noted that, vith very fev exceptions, economists in the
advanced industrial countries, do not deny that unemployment rates
have risen or that this represents a vorsening situation. Indeed
even monetarists abroad generally concede that the increase largely
represents involuntary unemployment. The main disagreement has been
over hov lonq-lasting the increase is likely to be.

Thus where the unemployment rate shows a clear long-term upward trend
we should, rather than dwell on the essentially metaphysical question
of whether the increased unemployment is voluntary or involuntary,
look at the secular dynamics of unemployment and poverty. That is, we
must attempt to come to grips with the processes at work over time,
which are tending to produce the trend. Analysis of the labour market
which runs mainly in terms of static supply and demand curves, as
much discussion of unemployment does, can throw little light on the
nature of these processes or of the measures needed to alleviate the
problem.
vi) In the preceding four paragraphs we have in effect been considering
how, in the light of our earlier explanation of slower growth rates
in the South African economy, we should interpret a rising trend in
some particular measure of the unemployment rate, where part of the
increase may be voluntary in the sense defined. Let us now consider
the same general problem for the case in which part of the observed
increase partly reflects an increase in underemployment rather than
open unemployment. Is it appropriate to use a composite index of
unemployment which includes both open and partial unemployment, or
does this procedure, as some have suggested, artificially turn what
really is a problem of poyerty into one of high and growing
unemployment. Let us deal with this by taking a few specific
examples:
(a) Consider the middle-aged British skilled worker made redundant and
forced to take an unskilled job at a lwer rate of pay. We can if we
choose then say that we no longer have a problem of unemployment but
one of poverty. Thua we can regard the worker as being as fully
employed as he was originally before the recession began. And this
does little violence to the facts if one is thinking of a developed
country like Britain where unskilled wage rates are say 25% less than
skilled. It remains true that the problem arose from a fall in the
dunand for labour, and in that sense it is basically a problem of
employment, but we may without too much bother accept the new
classical view of the matter in this case.

(bl What though of a Black who loses his job in a textiles factory in
Durban due to greater ccmpetition from the Far East, and leaves for
"the farm" in Hapumulo. Say he "works" six hours per reek for R5,00
there and so is regarded as fully employed in term of the criteria
used by the Current Population Survey. In the aggregate therefore the
rate of unemployment is unchanged. Is this reasonable?
There has in fact been a drastic reduction in the utilization of this
worker's labour services. Thus, it seems to me, to say that the
unemployment rate is unchanged is to fail to capture the essence of
what has happened. The unemployment index would fail ccmpletely to
reflect the fact that the situation so far as the availability of
work was concerned had clearly deteriorated. A measure of
unemployment incorporating underemployment, however, would reflect
thisl).
These two meaaures thus could produce quite different time trends,
and the choice of definition becomes critical for any analysis of the
cyclical or secular dynamics of the problem of unemployment. Indeed,
it is noteworthy that the CPS shows a significant drop in the Black
unemployment rate between Wtober 1977 and June 1978 from 12.5 to
10.1 per cent, against all the other indicators. For instance, over
this same period according to Simkins, the all-races unemployment
rate (with Black unemployment predominant) rose from 18.4 per cent to
20,4 per cent, and according to mots the Black unemployment rate
rose from 16,2 to 18.4 per cent. hlrthermore, the rate of registered
unemployment of Whites, Coloureds and Asiana, as illustrated in
Figure 2 also rose significantly, and there is no apparent reason why
the Black unemployment rate should have been moving in the oppoaite
direction. Also, this decline in the Black unemployment rate
conflicts with the picture presented in Table 7 and Figure 3 above,
which show rates of growth of non-agricultural employment of -1,29
and -2,26 in 1977 and 1978 respectively, in view of which we should
1) The same considerations would apply even if the individual worked the
same hours as he did in tom, but for, say, one twentieth of the
return.

have expected a substantial increase in the Black unemployment rate
in 1978, rather than a decrease.
Between June 1981 and June 1983 according to the CPS, the Black
unemployment rate rose from 7.8 per cent to 8,5 per cent, but this is
a somewhat slight increase conaidering the fact that non-agricultural
employment fell by -0,33 per cent and-3.66 per cent in 1982 and 1983
respectively. As in the case of 1977-78, it is also at odds with the
sharp increases in the rate of registered unemployment of Asians,
Colourede and Yhites which took place in these two years1).
These anomalous movements in the unemployment rate amongst Blacks as
measured by the CPS are probably due to the fact that they take
inadequate account of underemployment. It seems that in the South
African case, therefore, a composite measure of unemployment and of
underemployment2) is essential for studying time trends. The
difference between our middle-aged British worker forced into the
ranks of the unskilled and our Black worker languishing on the farm
in Mapumulo is surely one of kind rather than merely of degree. To
call it a problem of poverty is to fail to pinpoint the basic causes
of the problem: a decline in the rate of growth of the demand for
labour or perhaps, as in some years in the past decade, an absolute
decrease in the number of modern sector jobs; and a consequent
decline in the degree of utilisation of the available labour.
(c) There is a similar problem when a modern sector worker is displaced
to an informal sector job. As Simkina (1982:8-9) points out, the CPS
figures show a higher rate of increase of employment in agriculture,
cmerce and-services (sectors in which we should expect the informal
sector to be particularly important) than Population Census and
1) It might be noted, too, that the CPS Black unemployment rate rose
proportionately much more slightly than the CPs Coloured unemployment
rate in the period 1981-1983.
2) Both in the sense of fewer hours of work and work at a significantly
lower rate of pay than before the worker was dismissed.

Department of Statistics data indicate. The question then arises
whether this mainly reflects the inclusion of informal sector jobs by
the CPS. If so, are they really 'full' jobs7 Why should informal
sector employment be growing faster when the rate of grovth of formal
sector employment is declining? It is indeed hard to see why the
informal sector should have a dynamism of its om, enabling it to
show a healthy rate of expansion. despite recession in the formal
sectors; and it seems much more likely that the informal sector is
simply of necessity absorbing people who can't finds jobs in the
primary labour market1). And, if growth of employment in
'c-erce' and services' reflects formal sector grovth which other
estimates have missed, why is this occurring7 Is South Africa
entering the ranks of the post-industrial societies, exhibiting all
the signs of de-industrialisation. and if so why7 It is questions of
this kind which have to be considered if a case is to be made for
using the CPS data rather than other estimates of unemployment in
South Africa. Once again, therefore, we would emphasize that the
central problem in this regard is the analysis of the processes
underlying the cyclical and secular dynamic- of unemployment in South
Africa. Given our interpretation of the trends in the South African
economy, outlined above, it is reasonable to regard the higher growth
rates in agriculture, commerce and services, as reflecting a decline
in the quality of jobs. which must be taken into account in analysing
trends in the rate of unemployment.
1) %me argue that Black real wages increased rapidly and that there
was, therefore, a substantial shift in the racial distribution of
income, which henefitted Blacks in the homelands and the informal
sector in various ways, including through their effect on commuter
incomes and migrants' remittances. It is apparently this which
underlies Charles Simkins recent (1984) finding of significant
improvements in homelands per capita income between 1960 and 1980.
some fieldwork appears to suggest that there are in fact quite
significant numbers of informal sector jobs in Black peri-urban
areas, but data based on such field surveys do not appear to enable
us to tell yet whether these jobs are increasing faster than formal
sector jobs, so that they could upset the picture suggested by the
macrc-estimates of unemployment.

vii) Finally, amongst the causes of unemployment in South Africa, some
mention must be made of controls on the geographical distribution of
both population and economic activity. The recent Government White
Paper (1984 : 11) puts the matter as follows:
"Another restriction on the ability of the South African
African economy to create jobs has to do with the spatial
distribution of jobs and that of the available labour,
which do not always correspond. It is well known that
certain kinds of economic activity in Southern Africa,
such as industry and trade, are concentrated largely in
certain urban areas; the distribution of others, such as
agriculture and mining, are determined by the occurrence
of natural resources. It often happens that there is a
shortage of a particular kind of labour at the places
concerned, while in other parts of the country such
labour is unemployed. To the extent that administrative
or other restrictions, or a lack of reliable data on
labour surpluses or shortages in particular occupations
or regions, hinder the movement of labour from surplus to
shortage areas, the unemployment rate in the country will
be higher than it would otherwise have been".
Indeed, as is implied by some of our earlier discussion, legal and
administrative restrictions on the geographical mobility of Black
labour in South Africa, and in particular restrictions on permanent
migration by whole families, may well be a major reason for the high
absolute level of the unemployment rate in South Africa. This factor
would, fqr instance, largely amount for such unemployment as that due
to migrants spending periods of rest in the homelands, mentioned
above. However, what may perhaps be more relevant in view of our
interest in trends is that legal and administrative restrictions on
the nobility of labour, may well have contributed to the persistent
tendency for the unemployment rate to rise. For, coinciding with
the end of the great boom of the 'sixties, during which the rate of
Black urbanisation had been very rapid, the authorities resorted to

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traditionally been considerably higher than in other metropolitan
areas (particularly Durban and the Cape Peninsula),') the
increasing capital-intensity in the PwV region has probably had an
especially severe effect on unemployment amongst Blacks. And,
because of influx controls, this unemployment is to a large extent
located in the Bantu areas2).
3. Policy
Rather than attempting a detailed analysis of various possible
measures for employment creation, the aim of this final section is to
comment generally on the policy areas which seem to be most important
and which therefore seem to call for particular attention.
As the discussion above suggests, the problem of rising unemployment
rates stems basically from the slower rate of growth of the modern,
formal sector of the economy. An adequate rate of growth of
employment, such as vas last experienced in the 1960s, cannot be
regained vithout a significant increase in the overall growth rate.
There is much discussion these days of creating jobs in small scale
agriculture, small business and the informal sector, and of the need
for increasing reliance on these sectors. It is probably widely
recognised, hovever, that vhile a groving proportion of jobs in these
sectors may turn out to be necessary, such a trend vould simply be
indicative of the severity of the unemployment problem vhich besets
us rather than a satisfactory ansver to it.
1) See Bell (1983: 43-47].
2) See the Government White Paper (1984 : 23 and 27) for an indication
of inter-regional differences in unemployment rates amongst Blacks in
South Africa, based on CPS data.

This clearly does not mean that informal sector unemployment is
unimportant or even that measures should not be adopted which
facilitate its expansion. (kl the contrary, given the crisis of
employment in the formal sectors of the economy, the question of the
absolute magnitude, trends in, and the nature of informal sector
employment, and of the possibility that it might help increasingly in
future to alleviate the situation of people unable to find formal
sector jobs, is of vital importance. This is especially so since the
currently difficult economic conditions being experienced by the
economy as a whole may well persist for some years to come. The
poasibility of changing regulations, such as those relating to street
hawkers in urban areas, which at present impede the activities of
informal sector income earners, as well as various other aspects of
the problem of informal sector employment, therefore, call for
serious reconsideration. In addition to the possibility that it will
help provide badly needed jobs, it might well be found, as it has
been elsewhere, that informal sector activities perform a positive
economic function.
It is quite clear, too, from our discussion above, that the
possibility that the informal sector has already generated a
significant increase in employment in recent years, and may do so to
an even greater extent in future, has considerable significance for
the way in which the worldwide problem of unemployment manifests
itself in this country compared with other, more advanced countries.
Whereas in Europe it has mainly involved a substantial increase in
open, full unemployment, with a sharp dichotomy between those
employed and those out of work, in South Africa, as (probably also)
in other semi-industrialised and less developed countries, it is
likely to a substantial extent to involve an increase in
underemployment as well, both in the homelands and in urban and
peri-urban areas.
This may, indeed, be a significant advantage which a comparatively
underdeveloped country like South Africa has over advanced industrial
countries, particularly in economic conditions in which it has

already become much more difficult for these economically more
advanced countries to keep intact a satisfactory system of noncontributory
unemployment insurance. The possibility that employment
in the informal sector provides a 'cushion' for large numbers of
people who would otherwise be completely unemployed, which is not
available to the jobless in the advanced industrial countries, may
thus be seen as a positive advantage.
It must, nevertheless, be recognized that the possibility, indeed
probability, that we have become increasingly dependent on the
informal sector for employment creation in recent years, and will
become yet more so in future is by no means a satisfactory state of
affairs. Though the employment problem may take a somewhat different
form here, we have not and perhaps cannot escape the worsening of
conditions reflected by the rising unemployment rates in OECD
countries shown in Table 5 above; which the best available macrcestimates
of unemployment in South Africa also indicate. There is in
fact no solid empirical reason to believe that the South African
trends would be significantly different from those for OECD countries
or those indicated by the available macro-estimates. We must
remember that we do not in fact know the number or quality of
informal sector jobs, or, more important for the crucial matter of
the trend in the unemployment rate, how fast these have grown in the
ten years since the unemployment rate began its persistent climb.
A11 that is known with virtual certainty is that the rate of increase
of formal sector jobs has declined markedly over the past ten years.
And, furthermore, it is very likely that this has been a major reason
for any acceleration which may have recurred in the rate of growth of
informal sector employment. It is. therefore, important to give high
priority to the task of achieving as rapid a rate of growth of output
and employment as possible in the modern, formal sectors by trying to
ensure that optimal strategies are being adopted for this purpose.
It cannot be assumed that such policies are being pursued or that
they will be in future.

As noted earlier, a major theme of the recent White Paper on
strategies for employment creation is that factor market distortions
are a significant if not the main cause of the unemployment problem,
and it sees the remedy as lying largely in more "market orientated"
policies 'regarding interest rates, vagee and salaries, prices and
the exchange rate". While a "free market" approach in the form of
fever legal and administrative restrictions in certain spheres, such
as the geographical mobility of labour, occupational mobility, and
informal sector activity, may well facilitate employment creation it
is questionable whether the free market can seriouely be considered
to be a universal remedy for the problem.
Though it is clearly not possible within the scope of one paper to
examine thoroughly all significant spheres of policy in the light of
the remarks from the White Paper quoted above, there are perhaps
enough grounds for questioning them. Zhe consideration above of the
significance of low real interest rates, as a cause of unemployment,
suggests that the role of relative factor price distortions in
general may have been overplayed. A reduction in the qeneral rate of
expansion of the economy, rather than increasing capital-intensity,
was mainly responsible for the fall in employment growth. Proposals
to deal with unemployment by raising the price of capital relative to
labour, by increasing the absolute level of the interest rate and by
reducing or removing depreciation allowances from the profit form
structure, overlook the fact that these measures have scale as well
as proportions effects. In so far ae increaeing capital-intensity
has had an influence on employment growth this may well have been due
mainly to various factore other than low real interest rates.
Furthermore, as argued above, certain plausible explanations of the
low real interest rates which prevailed in the seventies in this and
other countries, suggeet that there would in any case have been
little the authorities here could have done to avoid them.
It is sometimes implied, too, by thoee espousing free market
solutions, that all that is needed to deal with problems such as

unemployment is deregulated markets, in order to ensure the absence
of factor and other price distortions, together with severely
restrictive monetary and fiscal policies. Both our analysis of the
causes of the decline in real interest rates and of the question of
the export elasticity of demand for South African produced goods,
suggest that excessive rates of inflation due to inadequate monetary
control cannot be seen as the fundamental cause of the problem.
These comparatively high rates of inflation are rather the
consequence (together with the law real interest rates, slow output
and capital-stock growth) of a number of exogenous shocks such as the
massive increases in energy prices, compounded in the South African
case by a fluctuating price of gold. Thus the answer to rising
unemployment does not lie simply in deregulation of markets together
with severely restrictive, deflationary monetary and fiscal policies.
Though such policies may be necessary in order to correct balance of
payments deficits, they tend to serve this purpose mainly by reducing
output and employment growth, rather than by improving a country's
competition position vis-5-vis foreiqn-produced gmds and so
stimulating an industrial recovery via import replacement and export
expansion. Such policies, though perhaps unavoidable for balance of
payments reasons, tend to aggravate rather than cure problems of
unemployment.
Two major areas of policy which do appear to have a significant
bearing on the rate of unemployment in South Africa are regional
policy and international economic policy. As regards regional policy
we would fully endorse the recommendations of the Economic Advisory
Council and the National Manpower Commission, as stated in the White
Paper (1984:1?), that "the restrictions on the geographic mobility of
labour be removed as far as possible and that the regional
development policy be applied in such a way that it will contribute
to the greatest poasible extent to the creation of employment
opportunities and vill not only bring about a redistribution of
employment opportunities". In viev of the opportunities this would
open up for earning incomes in both the formal and informal sectors
in and around the metropolitan areas, a substantial relaxation of

estrictions on the movement of Black labour to the metropolitan
areas and on the freedom of business firms to employ them, may well
for the reasons outlined earlier, make a significant contribution to
relieving the problem of structural unemployment in South Africa.
Among the various fields of macro-economic policy relevant to the
rate of economic grovth in South Africa, it is believed that
international economic relations are crucial. It will not be
possible at the tail-end of this paper to argue the matter in detail.
However, the view taken here is that two spheres of policy, which
have an absolutely fundamental bearinq on the long-term growth of
output and employment, are those relatinq to foreign exchange markets
and foreign trade. Given the constraints outlined above on the use
of some other policies, and the fact that much of the deflationary
pressure on the South African economy, as well as other major
disturbances such as fluctuations in the price of gold, originate
abroad, the way in which we define and regulate our monetary and
trade links with the rest of the world is bound to be crucial.
In the sphere of foreign exchange markets the declared aim of the
Government is the establishment of a system of completely freely
floating exchange rates, and some major steps have already been taken
in that direction. In the sphere of trade policy the Government has
committed itself much less clearly, and the formulation of policy in
this area appears to be in a state of flux, indeed, even a high state
of confusion at present. But judging by two recent government
reports, the tide in this area, too, is running strongly in favour of
a more open, outward-oriented economic system.
These two spheres of economic policy have played a major part in
South African thinking during earlier periods of economic difficvlty.
For instance, as economic conditions steadily worsened after the
First World War, trade policy was clearly perceived by the government
of the day as critical to dealing with the closely connected issues
of poverty and employment. Why is it that the climate of South
African thinking today is totally different from the 'twenties, the

'thirties and even the postvar period up to the early 'sixties? Is
it because economic conditions nov are so different that a completely
different policy response is called for? Is it that our knovledge of
economics these days is so much more sophisticated that we are now
able to see the error of our vays in those earlier times. Or vhat?
Though these are intriguing and important questions, ve cannot here
attempt to deal vith those tvo highly complex aspects of policy. It
must suffice for the present to say that by caparison vith these tvo
aspects of policy, many of the issues commonly raised in connection
vith employment creation are either insignificant or irrelevant.
Further, in the case of both these policy areas there appears to be a
real danger that vs may be in the process of adopting seriously
misconceived strategies. Both foreign exchange and foreiqn trade
policy, therefore, call for much more intensive, open debate
(vhatever may have been going behind closed doors), and are in very
urgent need of reconsideration. The decisions made nov in these
spheres will vitally affect our political and economic future.

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