South Africa lost 2.2 million jobs in the second quarter due to the lockdown. This has sent unemployment, as per the extended definition, to over 40%.
The staggering decline in the unemployment rate is the first real indication of how the labour force has been affected by the pandemic.
The 2.2 million lost jobs mean there are only 14.1 million employed people in the country – the lowest since 2011.
But despite the jobs bloodbath, the official jobless rate fell from 30.1% to 23.3%. This is due to the official definition excluding unemployed people who are not actively looking for a job. The extended definition, which includes these people, rose from 39.7% to 42%.
Unemployed persons declined substantially by 2.8 million – to 4.3 million compared to the first quarter of 2020.
According to Stats SA, the number of discouraged work-seekers decreased by 447 000, and the number of people who weren’t economically active for reasons other than discouragement increased by 5.6 million quarter on quarter, resulting in a net increase of 5.2 million in the not economically active population. “These changes resulted in a significant decrease of 6.8 percentage points in the official unemployment rate from 30.1% in quarter 1 2020 to 23.3% in quarter 2 2020.”
Risenga Maluleke, Statistician-General and Head of Statistics South Africa (Stats SA), explains: “The official unemployment rate is calculated using the number of persons who are employed and unemployed, and does not include discouraged work-seekers.”
He said the expanded unemployment rate increased by 2.3 percentage points in the second quarter. “This is reflective of the fact that people were available for work but did not actively look for work.”
The job losses followed the implementation of strict restrictions to curb the spread of the Covid-19 virus, which put the economy in its most prolonged recession in nearly three decades. Most South African businesses were forced to close for five weeks, and many were forced to retrench staff.
Not a true reflection
Economists warn that the unemployment statistics released paint an incorrect picture of the current trends in the workforce.
According to Dawie Roodt, chief economist at the Efficient Group, people who are not seeking employment due to lockdown restrictions cannot be categorised as discouraged workers.
“We are currently in very volatile circumstances and any numbers [released] is most likely to give us an incomplete picture of what is really going on [in the labour force]. We probably will have to wait a couple of months, or quarters before we can understand the underlying trend caused by the lockdown”.
“We have seen a massive increase in the number of people simply sitting at home doing nothing. Officially they are not unemployed and they are not even discouraged because they are not allowed to leave their places of residence. This fall in unemployment gives us an incorrect picture,” Roodt said.
He said that it would be better to look at the Labour Force Participation Rate, which collapsed by less than 50% in the second quarter.
Another economist at Citibank, Gina Schoeman, explains that the reason the unemployment statistics declined is because of a drop in the labour force.
“It is a function of the number of people unemployed people over the labour force because the number of people looking for work dropped drastically. You can also see that the companies were not hiring through the number of employed people in the population, as that absorption rate went down to 36% from 42%,” Schoeman said.
She says that these numbers released depict that people’s fear of contracting the virus has prevented them from looking for work.
Investec chief economist Annabel Bishop said that these numbers are expected to increase in the third quarter, as the lockdown regulations have been eased.
She explains that as people become more economically active the unemployment rate decreases.
“The most important point is that we estimate the unemployment rate would have been 45% in Quarter two if the newly unemployed in Quarter two had not been seen as ‘not economically active’ and instead were still part of the Labour force as they normally are. The data today is therefore not compatible with that of Quarter 1 of 2020 or any other historical period,” Bishop said
South Africa’s #unemployment rate declined by 6,8 percentage points to 23,3% in Q2:2020 compared to Q1:2020.
— Stats SA (@StatsSA) September 29, 2020
LISTEN: Isaah Mhlanga, Chief economist of Alexander Forbes, discusses Stats SA’s unemployment figures