Covid-19 and the effect on unemployment in South Africa

South Africa has not been exempted from the socio-economic effects of the pandemic. Its economy has been in decline since it entered a stringent lockdown as the main public health response to curb the spread of the virus on the 26th of March 2020.

Understanding the effects of the global pandemic on employment – at aggregated and sectoral levels – is therefore key for governments, policymakers, workers and employers. This should help minimise the long-term effects of the pandemic while ensuring the safety of individuals and the sustainability of businesses and jobs.

So far the government's response to address the impact of the pandemic has consisted of two main interventions: a stimulus package launched in April 2020 and in October 2020 a more long-term recovery plan. Our article focuses on the short-term stimulus package.

Major impact

Overall, the effects of the simulated COVID-19 pandemic were quite harsh on both the production and demand sides of the economy. The decline in GDP growth (-10%) has been largely due to the marked slowdown in economic activity coupled with widespread disruptions in both international and domestic supply chains.

Lower GDP growth and increasing unemployment invariably translate to rising unemployment and poverty rates. Analysis has shown a modest increase in poverty, increasing by 2.5 percentage points.

In addition, females, particularly the poorest female-headed households, were more negatively affected. This is because they derive a larger share of their income from a lower-skilled type of work.

Mining and minerals were affected by the lockdown as well as the drop in the mineral prices on the world market. Based on the model results, we estimated that 864,000 were affected in a mild scenario of the COVID-19 crisis. In a severe expression of the crisis, we estimate 1.3million jobs being affected. This is in line with the results from the Quarterly Employment Statistics by statistics South Africa. This showed losses in full-time employment of over 568,000 (-6,2%) year-on-year between June 2019 and June 2020 (at the peak of the COVID-19 lockdown) and losses of over 525,000 (-5.7%) in full-time employment year-on-year between September 2019 and September 2020.

Implications for policy

An interesting aspect of our findings from a policy intervention point of view is that the decline in employment and poverty is not uniform across skill levels and gender. As is often the case during economic crises, there are winners and losers, and in this case, it is the least skilled workers and poor females who suffer the most.

This suggests that when putting together a building back strategy government should promote investments in the services sectors, help these different sectors to set up protective barriers to allow the different activities to restart and importantly recover some of the lost jobs.

A support package to increase consumer purchasing power, and reducing the operating costs of these businesses and industries, would also be effective interventions.

As the country intervenes to cushion the poor, measures to resuscitate economic growth must be put in place at the same time. Policy options could include increasing public investments, accelerating the implementation of existing policies and diversifying the export and import basket. This could include increasing high value-added commodities in total exports and increasing the share of primary products in total imports.