The Unemployment and Employment focus area of the REDI project notes that the “entire economy, not just the formal sector” needs to be considered. Our research addresses this issue directly by examining informal firms. In addition, the focus is on employment and employment creation (potential) in the informal sector.
The primary hypothesis of this research is to understand sources of labour market inflexibility in South Africa. Previous micro evidence for South Africa (Kingdon & Knight, 2006) suggests that wages respond to local unemployment in much the same way as they do in developed economies. However, this defies conventional macro evidence (Fedderke 2012), which highlights wage inflexibility in the country, despite uncharacteristically high unemployment levels. Government policy objectives suggest that wage subsidies should be introduced to introduce more flexibility in this relationship and allow employment creation through lower wage bills for firms.
The topic of the proposed research paper addresses the policy challenge of determining the appropriate regulatory responses to stimulate small businesses to create jobs. Several regulatory initiatives (such as B-BBEE Act and Codes of Good Practice; Competition and Procurement legislation and regulations) aim to facilitate ‘effective’, ‘meaningful’ participation by small businesses and ‘equitable redistribution of income’ in local supply chains. The research paper will be based on empirical work and aims at mapping the distribution of risk, value and power in retail supply chains.
This is a proposal for an incentive grant to write a research paper for the REDI3x3 initiative on a topic that is central to the theme of inclusive growth. The basic idea is to analyse how effectively informal urban settlements function as gateways to urban labour markets for rural migrants. Given the uneven spatial distribution of economic opportunities across the country, rural-urban migration could play an important part in making economic growth more inclusive.
These three related projects examine the supply of unskilled labour, focusing on how the behaviour and decision-making of young men and women in poor urban neighbourhoods are shaped by their understanding of the labour market, their values and norms, and their psychological health.
South Africa’s labour-market and industrial policy appears to rest on the theory that raising minimum wages will help move firms ‘up the value-chain’ onto a more dynamic growth path. Any short-term employment consequences are implicitly assumed either to be worth it in the longer-run, or unlikely to happen in the presence of government support for firms making the transition.
A recent survey of literature on South African unemployment ‘discourse landscape’ draws attention to the many gaps in our knowledge of the economic mechanisms through which the informal self-employed (along with the unemployed) survive and the mobility barriers that hinder transitions (unemployed to informal self-employed, self-employed to formally employed) (Fourie, 2012). Fourie poses the question of how to view and model the informal sector; he writes: ‘is it a problem sector – i.e. aberration – or rather a promising sector and basis for people to be economically productive and generate income?’ (2012:50).
A recent survey of the South African unemployment research (Fourie 2011) reveals, inter alia, that there has been a limited amount of macroeconomic research on SA unemployment (compared to labour market studies, for instance). What there is, is on output elasticities of employment, sectoral shifts in employment, and possible labour-market related constraints on growth – and some work on increases in the long-run equilibrium rate of employment (the so-called NAIRU) after 1994.
Institutions matter. More specifically, Bargaining Councils matter in contemporary South Africa in terms of their effects on the differentiation of wages and the structure of employment. Institutions established more than eighty years ago continue today, even after the abandonment of their original rationale in terms of perpetuating a racist hierarchy, to exclude non-privileged workers from regulated employment.
The overall objective of the project is to generate, from a number of censuses, a consistent dataset that measures the amount of informal sector activity occurring in eight locations in urban townships in South Africa. This includes an enumeration of the number of informal sector enterprises, as well as some information about their activities, volume of trade, barriers to growth and the amount of employment that they generate.