Background
Cees Bruggemans, Chief Economist of FNB recently wrote in Business Day, using the Stats SA numbers (Unfolding Tragedy 31st Jan 2011), “Today our population is about 50 million. Those younger than 15 and older than 65 years of age are called ‘dependents and retirees’. There are 18 million of them. That leaves a pool of 15-65 year olds, some 32 million strong today. Among them there are some 12.5 million who are not economically active (pupils, students, homemakers and people unable to work for a variety of reasons). This leaves an available labour force of 19.5 million today. This splits two ways. Some 13 million work, of which 9 million formally and some 4 million informally. The remainder (some 6.5 million) is unemployed, of which 4.5 million are still seeking work (but so far no luck) and 2 million described as discouraged (no longer looking)”. 

Loane points out “If what Stats SA tells us is correct, then in the bigger picture 8.53 million people, or 49% of the labour force, are unemployed, underemployed or permanently disheartened about finding work. Seventy-four % of youth under the age of 35 are unemployed. Only 9% of matriculants will find work within a year of leaving school. It is not hard to extrapolate from the official statistics to a situation of mass disgruntlement and popular resentment, leading down a road to nowhere."
"But, our research tells us that these official statistics are wrong!" 

"At Adcorp, (South Africa’s largest employment services company and the country’s leading authority of labour market trends), we have reliable research that prove Statistics SA’s official measurement of employment is to be mistaken. Whilst there may only be 12.96 million people formally employed, there is a total of 19.2 million people engaged in some or other form of economic activity, properly counting the informal, unofficial sector of the economy.”

If this is true, the picture changes considerably

According to Adcorp’s research, "economic activity in the unofficial sectors (6.19 million) very nearly equals the number of unemployed and discouraged people in the formal sector (6.43 million), which suggests that – if the informal sector is fully accounted for – South Africa’s situation is quite different to what has typically been portrayed. The unemployment rate in the formal sector may well be 25.3%, but there is no question that the rate of people totally excluded from any form of economic activity, including the informal sector, is possibly as low as 7.9%.” 

This puts us on a par with many developed countries!

Research methodology

Loane continues, “The statistical methods used (by Stats SA) to reach these conclusions are somewhat arcane, involving the comparison of officially recorded economic activity against the accelerating growth of cash transactions outside the official, recorded sectors of the economy, which are themselves largely connected with the evasion of taxes and the avoidance of labour laws. But Adcorp’s statistical methods are based on widely accepted international norms for calculating the size of the informal economy, and Adcorp’s real innovation has been to use these estimates to calculate the number of people employed in the informal economy.

By contrast, Stats SA calculate that the informal sector numbers to be only 2.17 million people and – in contrast with every South African’s daily observations – this figure has evidently declined from 2.3 million people in 2008 (the last year for which coherent data are available). According to Adcorp research, unofficial employment (growing at 6.7% per annum) will exceed official employment (growing at 0.9% per annum) by 2020."

Of course, employment in the informal sector is not as luxurious or secure as employment in the formal sector. 

"In fact, in many cases informal employment is brutish and mean. Wage rates in the informal sector are purely market-related and bear no relation to the raft of laws regulating pay and working conditions. Informal sector workers do not have access to medical aids, retirement funds or dispute resolution procedures, which are Stats SA’s minimum requirements for designating someone a “formal” employee."

Yet for many people, especially young people, it is the only available means of lifting oneself by one’s bootstraps. Adcorp interacts with more than 1,000,000 job-seekers and finds work for 200,000 people, lifting people from the informal sector, where they have acquired some rudimentary skills, experience and a disciplined work ethic, into the formal sector, where they usually go on to aspirational careers.

“We may argue over the decimal places in our numbers. But Adcorp’s research indisputably presents a picture of an economy that is better able to create economic opportunities than the official statistics suggest. In fact, it holds bold lessons for government: if conditions in the formal sector were better aligned to conditions in the informal sector – notably collective bargaining and dismissal protections, which are notably absent in the fast-growing and job-creating informal sector – formal sector employment would not nearly be the economic, social and political crisis that it is today.”

Loane concludes “We have looked through our ability to create jobs through one eye, that of the formal sector and the developmental state, we have totally underestimated the entrepreneurial spirit in the informal and second economy. Our previous measurement methodology has been flawed. There is a different picture out there and this has massive implications for policy making going forward.” 

Conclusion
Gathering statistics, conducting research and drawing conclusions is a difficult job.  We all accept that, nevertheless there are four critical issues that need clear answers when research is commissioned:

·    What research needs to be conducted?

·    What is the most appropriate methodology?

·    What ethical issues are there in the conducting of the research?

·    What are the implications for national policy?

Clearly the methodology employed by Stats SA, using the 2001 population census and a survey of 30 000 households, is different from the methodology employed by Adcorp, tracking a million job applicants a year.  However, in a situation where the findings of the research are so remarkably different the consequences are considerable for government policy. Take one example – the payment of social grants. Currently 13 million people benefit from social grants. The question on all of our minds must be, “how many of these claimants are benefitting from some form of informal employment and yet claiming to be unemployed”? 

In essence Adcorp’s findings have far-reaching implications for all our social policy issues; housing, feeding, schooling, healthcare, child support and urbanisation to name a few. 

So while the research conducted by Adcorp presents a very different picture of our employment / unemployment challenges in South Africa, it is really important that this private sector initiative be embraced by government.

In recent times we have witnessed the President’s call for 5 million jobs to be created; proposed amendments to our labour laws; the debate on decent work; and the banning of labour brokers - all of which are government initiatives designed to alleviate our unemployment challenges.

But the question remains: If the Adcorp research is right, maybe we should be spending more time encouraging our ‘newly discovered’ and booming entrepreneurial sector (the only sustainable creator of jobs), making it easier for them to exist while offering basic protection to those they employ, rather than expecting government to create jobs (never worked anywhere) and making legislative compliance so onerous that these budding entrepreneurs, and those they employ, hide from the government gatherers of statistics?

*Loane Sharp is an economist and labour analyst at Adcorp, South Africa’s leading provider of staffing, human capital management and business process outsourcing services and an eminent authority on the South African labour market.