Economists debate the true unemployment rate in South Africa
Debate has been sparked on the unemployment rate in South Africa with suggestions that it could be lower if one considers entrepreneurs and those employed in the informal economy.
Image: Ron Lach / Pexels
Debate has been sparked on South Africa's unemployment rate after it was suggested that the figure could be much lower than the publicly recorded rate if the role played by the informal sector of the economy is taken into account. Economists weighed in on the issue this week. They said while Statistics South Africa collects quality information to produce statistics on unemployment and GDP, this information could be affected by incorrect data and untruths.
Capitec CEO Gerard Fourie first raised the issue and said there should be a rethink of the country's unemployment metric, contending that when the vast informal sector is taken into account, the headline figure of 32.9% could be closer to 10%. The government places the rate of unemployment at about 32%, with the expanded definition of unemployment— which includes people who are despondent and no longer looking for work— at around 50%.
Fourie mentioned that Statistics South Africa does not count self-employed people, highlighting that many individuals in the informal economy are selling all kinds of goods and making up to R1000 a day.
Independent economic analyst Professor Bonke Dumisa said South Africa has a strict definition of employment and unemployment.
'Yes, it could be true that the unemployment rate is much lower than our statistics show. The fact is that I have travelled to many countries, even those facing much more difficult conditions than us, and they are regarded as doing better than South Africa when it comes to unemployment. This is because South Africa has a very strict definition of employment,' he said.
He said a person running a small informal business that makes more money than someone working at a factory is considered unemployed, even though they might be earning more. He added that some people running businesses in the informal economy avoid declaring that income to avoid tax repercussions.
Dumisa, however, said the country should not change the definition, as it would distort the real picture of unemployment. 'We should not run away from the fact that we have structural unemployment that is not absorbing the highly qualified people that the country is producing.'
Another economist, Dawie Roodt, said, 'Based on the expanded definition of unemployment, which puts unemployment at around 50%, there should be a dire scene of destitute people on the side of the roads. However, we are not seeing that, which suggests that people are earning an income from somewhere, indicating that the real number of unemployment could be lower than it is recorded.
'What we really need to be concerned about when it comes to unemployment is the trajectory of unemployment. It is true that over the years this has been increasing, and that is something we need to be very concerned about.' He added that while Statistics South Africa gathers quality data, people may lie or provide incorrect information, fearing repercussions from SARS or losing their grants.
Prof Dieter van Fintel, from the Department of Economics at Stellenbosch University, however, disagreed; he stated that if somebody has done just one hour of work in the week, statistics count them as employed. 'That is, even informal work is captured in the statistics, even if people do not experience this as sustainable 'work' that provides a decent income. Nearly 20% of everyone working in South Africa is in the informal sector. This figure has remained stable across decades.
'The question that economists have wondered is why this figure is so small when unemployment is so high. 'Some of the factors that may impede informal sector participation in South Africa are high crime rates, spatial disparities arising from the Group Areas Act and isolation from supply chains and business networks," he said.
Stats SA has also defended its data. It told news channel eNCA that the informal sector is included in reports such as its Quarterly Labour Force Survey.
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