The South African Civil Society Information Service

Impact of Global Jobs Crisis on South Africa Further Complicated by Racial Prejudice in Our Job Market

By Saliem Fakir · 7 Oct 2011

The International Labour Organization (ILO) released a global jobs update at a recent G20 meeting. To date there are 200 million people without work and the problem of long-term unemployment, especially amongst the youth, is disturbingly chronic.

Prospects for the next ten years don’t look too good as many developed economies and developing countries are showing double-digit unemployment rates that have been on economic indicator charts for a while.

Of late we have gone from one financial crisis to another. And, as each comes along, the jobless hole gets deeper.

The intellectual Slavoj Zizek, in a recent edition of the London Review of Books, argued that when a thing happens once it can be dismissed as an accident but when it repeats itself “it is a sign that a deeper historical process is unfolding.”

Zizek was not only referring to the riots in London but also the repeat of the financial and job crisis the world is confronted with. The former seems to be pregnant with a new vista of political disruption that has all the hallmarks of more Arab Springs even in developed economies.

The capacity for a stable future relies on shared hope but as things stand now the feasibility of that will not materialise if the gap between the haves and have-nots widens.

Governments are running out of answers on how to solve the growing jobless crisis, which is largely structural than growth related.

A recent special report on jobs by the Economist notes: “Today’s jobs pain is more than the aftermath of the financial crisis. Globalisation and technological innovation are bringing about long-term changes in the world economy that are altering the structure of the labour market.”

The Economist goes on to propose that unemployment in rich countries will continue to be stubbornly high even if there were jobs growth.

This was further echoed by the ILO pointing out that close to half of the working population in the world of 1.53 billion have “vulnerable employment” either working for themselves or are badly paid.

The most alarming statistics on youth employment conditions comes out of the US and OECD:  those between 15-24 years old are most vulnerable to job cuts and sustained unemployment. In the US the figure for sustained long-term unemployment is 30% up 10% more since 2007.

This is despite the US boast that labour flexibility will create more jobs. In fact, it has improved the flexibility with which jobs are lost. The US now officially has 46.2 million people living below the poverty line -- the highest number in 52 years according to a New York Times article.

And, since most young people are employed as casual labour or on short-term contracts they are most vulnerable to lay-offs. In Spain youth unemployment soared from 17% or so in 2007 to an unprecedented 44% to date.

And, as we have seen in South Africa the longer you are unemployed the more likely you will remain unemployed.

From and since the period 1999-2009, median income in the US was already on a downward trend. It was only due to the housing bubble that the American middle class was able to live beyond its means because they could raise their standard of living on borrowed time and money.

But the hollowing out of the middle class and its collapse is happening rapidly and likely to be sustained for a long time as people pay off their debts.  And so the gap between rich and poor widens even further.

Recent studies show that the top 1 to 10% of earners in the US now reap 80% or more of the rewards of globalisation and growth. Rich countries - with large class divides - have become more and more reliant on these top earners’ incomes and their buying habits to stimulate consumptive growth.

This structural shift has been around for a while.

Even with the recession from the period between 2007-2009 top earners saw their income rise while that of the lowest earners saw their incomes being eroded. Top earners were in fact able to use their cash reserves to buyer cheaper assets and continue to strengthen their economic position.

Paul Krugman in a New York Times op-ed, shows how, even with growth, national income for the periods 1979-2005 rose 21% for middle income homes but a whopping 480% for the top 100th of the 1 percent income earners in the US.

Their consolidation is a result of a shift to the least tax regime being levied on wealth for decades (which includes corporate profits, capital gains and dividends) toward higher taxes for work (those on the payroll).

The structural changes have also been a result of the globalisation of finance, technology and relocation of production particularly in the US, UK and many parts of Europe to Asia.

The globalisation of finance effectively dictated the terms and conditions of the new exchange that evolved in the last 20 years or so.

The financialisation of the US economy and other developed economies, which South Africa emulated since 1994 and further reinforced through BEE deals, has resulted in the displacement of manufacturing for the growth in the services sectors.

In the US for instance, about 98% of the net jobs out of the 27 million that was created between 1990-2008, were all in the non-tradable sector.

And, for those created in the tradable sector they have increasingly been the preserve of a concentrated minority of specialist skills and educated workforce whose incomes have risen exponentially compared to ordinary workers.

If we take the US example to its logical conclusion, despite 41% growth in productivity gains in the last 20 years - contributed largely by the private sector - this productivity growth was at the expense of jobs.

Productivity gains were achieved as a result of technology shift and greater integration of US companies in the global economy.

The US has replaced itself with a rentier economy rather than one that is productivity based. In other-words, by moving production to cheaper locations outside of developed economies the financialised economies have become more and more consumer dependent and led.

All of this was also aided by cheap credit, which kept the veil over the stark trend of diminishing income for workers compared to the overall share of profit or wealth generated from globalisation for financiers and corporations.

At its core, structural shifts in labour markets are a result of greater reliance and preference for technology, which is pushing labour into the temporary and short-term labour market zone on a more sustained basis.

Take the American agricultural sector, for instance: it is the third largest contributor to US GDP, yet only employs 2% of the work force due to mechanization.

A similar trend prevails in South Africa. This is both a result of the combination of an ineffectual land reform process and the greater corporatisation and mechanisation of South Africa’s large-scale farming sector that is mainly white owned.

Mining and agriculture in South Africa once accounted for 30% of jobs in South Africa at 2008 figures; it is now down to 8%.

A study by the Mckinsey Global Institute last year provides for a more insightful picture of what is going on in the job market globally.

McKinsey classifies jobs into three categories: transformational (involving physical activity), transactional (which involves routine jobs like clerical work, etc.) and finally interactional work (which requires specialised knowledge and having to work with others).

Transformational jobs in the developed economies have drastically declined and been transferred to emerging economies. Similar trends are visible for parts of South Africa’s economy that caters for first world consumers.

In the transactional sector, technology is the main driver of change where automation is replacing routine white-collar jobs.

Interactional jobs tend to be less threatened and technology also tends to aid and enhance this category of work.

Interactional jobs draw from the best educated and technologically capable. They in turn demand the highest income.

Transformational and transactional jobs have suffered the most through increased competition where labour from developing and emerging economies are pitted against labour in developed economies and in turn against each other.

It is one of the reasons why blind adherence to the growth and trickle down model explains everything and nothing at the same time. It is far better to understand what is happening within the different categories of job profiles to determine which policy interventions are most likely to work and which not.

In South Africa there is another twist to the joblessness tale that tells us about the prospects of getting a quality job for those who don’t have the right skin colour and educational background in the private market.

Unemployment in South Africa is a case of ‘lemons’  (much like a bad second-hand car) and to exploit the useful metaphor the economist George Akerlof deployed in his seminal essay published in 1970.

Akerlof sought to offer a psychological rationale for the problem of adverse selection of minorities seeking work and why such asymmetries arise.

In most cases, perception of poor education, racial bias and one’s tendency for accepting workplace managerial authority or lack thereof, tends to exacerbate the problem of adverse selection in the South African labour market.

To be blunt: blacks are an economic minority in South Africa and whites are an economic majority on account of their education, skills base, income potential, asset ownership and standard of living.

Adverse selection allows heightened income inequality because scarce white skills attracts the highest wages whereas the abundant pool of domestic and regional black labour lowers the overall income rate for domestic black job seekers and black Africans as a whole.

Even good individual candidates are prejudiced because of the general rule of ‘lemons’ applied to the group as a whole. Rational or irrational adverse selection exercised over a whole group tends to drive out opportunities even for the best candidates.

In South Africa, adverse selection is one of the reasons blacks, particularly black males, are unlikely to be employed by white firms especially in managerial and more specialised skilled positions. It’s the creep of the ‘lemon’ problem that Akerlof wrote about.

By extension this also explains why there is the increased use of short-term contract workers and the casualisation of young employees in the private market: a risk averse measure the market exercises against the ‘lemon’ problem.

The default of adverse selection in predominantly white firms, in the private market, forces the flipside: that of adverse selection in the public sector. Blacks and non-whites are more likely to be employed and promoted in the public sector than whites.

But the story in South Africa is even more nuanced. Amongst the domestic private job market, local black females or black employees (male and female) from outside of South Africa are preferred, leaving South African black males jobless for far longer periods.

Other Africans are not only preferred because of better education but also because they are less likely to challenge managerial authority within white owned firms.

It is one of the reasons market driven solutions to job creation without government intervention (like affirmative action policies) won’t happen on its own.

It is also the theoretical underpinnings for the job subsidy the government is introducing without being quite explicit about the problem of selection bias in the private market for black job entrants.

The government’s subsidy acts as a guarantee in which the government carries the risk of employee selection from the ranks of economic minorities. It is a cynical solution to the problem of prejudice in a structured racialised private job market.

It does not resolve the underlying problem of the irrational reaction of the market to the perceived problems with ‘lemons’.

We may well be in a bubble of old economic concepts that seem to reproduce the same diagnosis and recipes of policy intervention. Yet, what we may need is actually a new set of concepts and radically different policy interventions.

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