South Africa’s record-high unemployment rate is a significant cause for alarm, but just as concerning is the country’s low labour absorption rate, says Reezwana Sumad, senior research analyst at Nedbank.
The labour absorption rate provides an alternative indication to the unemployment rate regarding the lack of job opportunities in the labour market and reflects the proportion of the working-age population aged 15-65 years that is employed.
The labour absorption ratio, which was already dismally low, fell to 35.9% in Q3 from 37.7% in Q2, Sumad said.
“In a healthy economy, this ratio is close to 60%. South Africa’s expanded unemployment rate – which includes discouraged work seekers – is now 46.6%.
“This means that almost half of the labour force is without work in South Africa. Similarly, youth unemployment rose to 46%, from 44.2% in the previous quarter.”
Since the start of the Covid pandemic, there have been over one million jobs lost, reflecting a 9.9% reduction in employment since Q1 2020, Sumad said.
“The unemployment rate tends to rise sharply during the recovery period after a deep recession, due to the influx of people into the labour force, which is what is currently happening in South Africa. As these people find work or become discouraged and stop looking for work, the unemployment rate will begin to decline.
“In South Africa, given our unique structural impediments – electricity shortages, rigid labour market and very weak investment growth – we are likely to replenish 2.2% of jobs per annum, in our view.”
This means that the unemployment rate will only decline gradually over a prolonged period, rather than the pronounced short-term reduction we would like, she said.
“If we account for population growth, the labour force typically grows by 3% per annum, then we may see the unemployment rate remain elevated or rise further, because the growth in the labour force may far exceed the number of available jobs created,
“This also means that many unemployed people will remain structurally unemployed, adding further strain on public sector resources and the social grant system.”