Surviving Unemployment without State Support: Unemployment and Household Formation in South Africa

Abstract

Abstract:High unemployment in many OECD countries is often attributed, at least in part, to the generosity and long duration of unemployment compensation. It is therefore instructive to examine a country where high unemployment exists despite the near complete absence of an unemployment insurance system. In South Africa unemployment stood at 23% in 1997 and the unemployed have no unemployment insurance nor informal sector activities to fall back on. This paper examines how the unemployed are able to get access to resources without support from unemployment compensation. Analysing a household survey from 1995, we find that the household formation response of the unemployed is the critical way in which they assure access to resources. In particular, unemployment delays the setting up of an individual household of young people, in some cases by decades. It also leads to the dissolution of existing households and a return of constituent members to parents and other relatives and friends. Access to state transfers (in particular, noncontributory old age pensions) increases the likelihood of attracting unemployed persons to a household. Some unemployed do not benefit from this safety net, and the presence of unemployed members pulls many households supporting them into poverty. We also show that the household formation responses draw some unemployed away from employment opportunities and thus lowers their employment prospects. The paper discusses the implications of these findings for debates about unemployment and social policy in South Africa and in OECD countries. Acknowledgements:We would like to thank

Fiscal Policy and Unemployment in South Africa: 1980 – 2010

“…Although a large gap of literature exists in South Africa, various researchers have tried to model fiscal policy and unemployment in the country. Notable researchers who contributed to the South African literature include but not limited to: Stryker, Cassim, Rajaratnam, Bhorat, Leibbrandt, and Plunkett (2001), Agénor (2004), Kingdon, and Knight (2007), Banerjee, Galiani, Levinsohn, McLaren and Woolard (2008), and Klasen and Woolard (2008). The next section discusses the methodology used for this study.…”

Trends in South African Income Distribution and Poverty since the Fall of Apartheid

“…Klasen and Woolard (2009) argue that access to state transfers results in the unemployed basing their location decisions on the availability of economic support rather than on the best location for employment search. Because a lot of economic support (specifically that provided by the elderly) is based in rural areas, this leads to reduced opportunities for job matching.…”

Kin, Market and State in the Provision of Care in South Africa

“…Because pensions are set at a generous level -higher than the minimum wage in some sectors, such that some working people's incomes rise when they retire -pensioners often support their kin rather than vice versa. 'My family eat this money too', said one pensioner (quoted in Møller and Sotshongaye, 1996; see also Sagner and Mtati, 1999;Bertrand et al, 2003;Klasen and Woolard, 2009;Bohman et al, 2009). …”

“…Where possible, they remain attached to breadwinners. Unemployment therefore traps some people in rural areas and generally delays household formation (Klasen and Woolard, 2009). …”