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The Reality of Unemployment

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StatsSA just released the Q1 unemployment figures for 2016. The quoted, official, unemployment rate is 26.7%, up from 26.4% for the same quarter in 2015. There are so many factors that this number doesn’t account for that I will look at in this article.

The first important consideration is the working age population; this is any person within South Africa that is aged between 15 and 64.

Now consider the official unemployment ratio, this ratio is calculated as:

Unemployment pic

The unemployed individuals in the above formula are individuals that are unemployed and actively looking for a job. This number excludes individuals that have given up on the hopes of finding a job in the short term and are not actively looking for a job. The people that are not part of the official unemployed individuals are known as discouraged job seekers.

Let’s consider the labour force, the labour force value is only the economically active population of South Africa, thus it solely consists of the employed and officially unemployed. In essence the labour force does not include all the individuals that form part of the working age population.

According to StatsSA, South Africa has a working age population of 36.4 million people. The labour force is 21.4 million. The labour force is then divided into 15.7 million employed people and 5.7 million unemployed people. This leaves 15 million people as not economically active. The 15 million people equates to roughly 41.32% of the working age population.

It is possible to breakdown the economically inactive individuals further: discouraged work seekers, 2.5 million, and what StatsSA defines as “other”, 2.6 million. The “other” class includes students and people that are not looking for a job and do not want to work. An example would be a stay at home parent or a discouraged worker that has completely lost all hope of ever finding a job.

Taking this into consideration, the labour force participation rate within South Africa is 58.68% (the labour force to the working age population). The labour absorption rate of South Africa is 42.99% (the employed individuals to the working age population).

When considering that a small part of the “other” classification is students, this is extremely worrying. As South Africa’s employment sectors (both formal and informal) cannot even sustain half of the population. This is forcing individuals to resort to a variety of measures to seek a viable livelihood. Many of these individuals resort to the unmeasured (the government is unable to track these statistics and often include the individuals in the “other” classification) informal sector.

So by stating that unemployment in South Africa is 26.7% is, in my opinion, a very misguided and uninformed value. The 26.7% is manipulated by official classifications and calculations, and is not truly representative of the South African landscape. It is not possible, in a South African context, to utilise a conventional measure of unemployment, as it does not account for the unique setup of our South African society. We might need to relook the manner of calculation to be able to more accurately measure unemployment within South Africa.

Should you have any queries or would like to get in touch with the author contact him at doberholzer@striginegroup.co.za or visit our website at www.striginegroup.co.za

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