Lockdown ‘distorted’ unemployment figures, actually at 42%

Although the unemployment figures for the second quarter of the year looks like an improvement, it is actually a warning that worse is to come.

Although the official unemployment rate has decreased by 6,8% from 30,1% to 23,3%, the lowest rate since the third quarter of 2009, this sharp decrease does not reflect an improvement in the labour market, but rather an effect of the national lockdown.

Professor Jannie Rossouw, interim head of the Wits Business School, says the unemployment figures based on the narrow definition of people who actively looked for jobs are completely distorted because people could probably not look for work during the lockdown.

Statistics meaningless

“Unfortunately this is again an example where statistics become fairly meaningless for purposes of comparison owing to exogenous factors. The more meaningful and important figure is the expanded definition of unemployment, which increased by 2,3% to 42,0%. This is an indication that even worse unemployment figures can follow in the second half of 2020,” he says.

Rossouw warns that South Africa indeed faces a serious unemployment crisis and needs rapid economic growth to turn this trend around and says the South African government should allow the private sector the necessary scope for this growth.

According to Stats SA the official definition of unemployment requires that people look for work and are available to work, but the national lockdown prevented  people from looking for work.

The unemployment rate, according to this definition, increased by 2,3% to 42,0% in the second quarter compared to the first quarter. Almost all of the 5,2 million people who did not look for work for reasons other than discouragement indicated “national lockdown” as the main reason for not looking for work.

Lockdown

The lockdown also influenced people who were employed in various ways. Of the 14,2 million people who were employed in the second quarter, more than half (58,1%) were expected to work during the national lockdown and 17,0% worked from home, with more people working from home in Gauteng and Western Cape. More professionals (44,7%) and managers (40,6%) worked from home, which indicates access to tools of the trade at home.

Most of the employed people continued to receive pay, but about one in five had a reduction in their pay. Stats SA says there seems to be some relationship between level of education and reduction in pay, with almost nine in every 10 employed graduates (89,7%) continuing to receive a full salary, compared to 75,2% of those with less than matric.

Bhekinkosi Khuzwayo, portfolio manager at LimaMbeu Investment Managers, also says the decrease in the unemployment rate is more a result of a technicality due to the narrow definition of unemployment.

“During the stringent lockdown phase, fewer people were actively looking for work and were excluded from the official definition of being unemployed.”

He says the numbers worsened when the broad definition of unemployment, which includes people who are not actively looking for a job but are available to work, is used. According to Bloomberg, the broad unemployment rate went from 39.7% to 42%.

Andrew Duvenage, Managing Director of NFB Private Wealth Management agrees that the expanded definition of unemployment reflects more accurately how many people are actually out of work. “Realistically, South Africa’s unemployment is well north of 40% and potentially approaching 50%.”

Lullu Krugel, chief economist for PwC Africa Strategy and Dr Christie Viljoen, PwC Strategy and economist say some of the 2.2 million jobs lost in the second quarter will be recovered during the second half of this year. “However, PwC still expects a net loss of 1.5 million jobs by year-end, which will compound the existing challenges seen prior to the pandemic in creating enough value-adding jobs in South Africa.”

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