Context plays role in grasping labour market trends

We should always bear in mind the demographic phenomena underlying patterns and trends, writes Pali Lehohla.

There exists an unscientific notion among a number of commentators on labour market matters that intuitively the relationship between employment and unemployment is inverse. That is when the one goes up the other should go down. This notion appears to be what informs public debate.

The fact is that quite counterintuitively the relationship is at times direct and the first graph demonstrates the existence of both the inverse and direct relationship.

For instance in the first quarter of a year, unemployment may rise due to new labour market entrants starting to look for jobs, these include recently graduated students. Unemployment can also decline as those who are unemployed stop searching for work, for example, discouraged work-seekers. Furthermore, seasonal jobs related to the festive period come to an end and, as such, employment also declines.

The main indicators of the labour market, namely employment and unemployment together with the labour force absorption rate and participation rate, shed light on how the economic society behaves. These indicators change alongside the country’s changing economic climate.

While it is likely that employment has been affected by the broader economic slowdown, the sharp job losses reported for the first quarter of this year should be understood within the broader picture of decreasing employment (355 000), increased unemployment (521 000), declining absorption rate by 1.2 percentage points (43 percent), as well as increased labour force participation rate by 0.2 percentage points to 58.7 percent in the first quarter of this year (Q1: 2016). At work are demographic processes.

The trend in the number of employed and unemployed over the period Q1: 2008 and Q4: 2014 finds an inverse relationship between employment and unemployment, thus higher employment is associated with lower unemployment and vice versa.

However, since Q4: 2014, this relationship no longer holds; unemployment levels fluctuated last year, while employment levels have increased exponentially. When the country observed large changes especially in unemployment between Q4: 2014 and Q1: 2015 (626 000), the economists questioned the magnitude of these changes.

During the economic recession, the contraction in quarterly employment growth followed Q1: 2009 after the gross domestic product (GDP) contraction in Q4: 2008. Since this point, employment growth or contractions lagged the changes in GDP.

Furthermore we should always bear in mind the demographic phenomena underlying all these somewhat surprising patterns, especially in circumstances where a demographic transition is not accompanied by a demographic dividend, such as is the case among the country’s black and coloured population. This puts paid the inherent socio-economic contradictions of apartheid, which analysts should be alive to.

It counts to count context.

* Dr Pali Lehohla is the statistician-general of South Africa and head of Statistics SA.

** The views expressed here do not necessarily reflect those of Independent Media.

BUSINESS REPORT