Evidence based employment scenarios & integrated development policies Presentation to UNDP Policy Dialogue on long term social protection for inclusive growth by Dr. Miriam Altman Commissioner – National Planning Commission & Executive Director – Human Sciences Research Council 11 October 2010

SA context of extreme structural misalignments Highest open unemployment in the world Very low rates of economic participation Low pay relative to cost of living Deep and extensive poverty – even in households with working person (‘working poverty’) Minerals economy dynamics In 2004, Government committed to halving the rate of unemployment and poverty by 2014

Employment scenarios We ask: what are the possible routes to cutting unemployment and poverty in half on a sustainable basis? ‘Evidence based employment scenarios’ process established in 2005 Generates the evidence about the pieces in the puzzle and how they fit together Draws together top decision makers from business, labour and government, plus experts into dialogue, involved from beginning to end The scenarios are independent of the policy process, but our other work is closely linked to policy formulation Information exchange through networked hub and spokes model

Key questions What is the ultimate target – what does halving unemployment and poverty actually mean? How would we know if we were meaningfully moving towards this target? Where might jobs be created? If unemployment were halved, would poverty also be halved? What is the system of social protection that ensures working people can live decently? What are the choices, costs and trade-offs are associated with different paths?

First step – define the target what does ‘halving unemployment’ mean?  Halving unemployment between 2004 – 2014 means:  Unemployment falls from 28% in 2004 to 14% in 2014  Goal assumes that employment should be sustainable so that can achieve full employment by 2024  Number of jobs needed =  5 million net new jobs needed to halve strict unemployment  Approx 40% of population fall below proposed poverty line of R 430 pp pm (2006). Using this definition, halving poverty would mean 20% of population fall below this line by 2014.

Identifying sectors where jobs created Agriculture & Mining Manufacturing Skill intensive services Labour intensive services Survivalist informal activity Public service Public works & special employment programmes

3 employment scenarios Critical differentiators Different rates and types of economic growth Extent that globally integrated dynamic industries expand Lower growth path relies on minerals exports, and jobs created in low paid services Policies that underpin these different rates & types of growth, such as investments in network infrastructure or public works Faster growth earns more tax revenue, and has less need for state-based job creation & poverty interventions Slower growth requires substantial intervention in job creation, and poverty alleviation as average wages are lower. But there is less tax revenue available.

Earnings from work the challenge of working poverty  2/3 of working people live in households that skate below or near the poverty line in  High rate of working poverty means that halving unemployment will not automatically translate into halving poverty unless:  New employment opportunities provide a decent income  Cost of living becomes more affordable  System of social protection deepens The employment scenarios show that even if unemployment halved, 35% of the population would still fall below the poverty line in the absence of grants. Social grants would further reduce this figure to 30%

Wage distribution under 3 scenarios In 2004 Rand

Social protection SA context = high cost of living and low & precarious earnings from work Sustainable development path will require social protection policy that aims to: Raise incomes Reduce cost of living Reduce risk (so that crises not disabling)

Some questions about enabling environment Is it possible for lower income groups to assemble reasonable standard of living, based on: Cost of living – esp food Money coming in Social contribution/in-kind contributions (eg free educ and health, etc) Are markets and services functional to economic participation? Eg is cost and time associated with travel between different potential sources of (dispersed) employment or business functional to participation? (ie job search, taking new job where-ever found, getting goods to market or inputs?) Are there substantial resources that might be under-utilized – where bringing them into production, or raising their output could have contribution to output & employment?….. Eg is land fully utilised even for subsistence production?; are logistics at globally competitive standard?

Weighing up the resources for special interventions and reforms

Cost implications of reducing both UE & Poverty Any large additional choices to make up for shortfall in employment or reduce poverty, alongside market based growth will be costly For example: Large expansion to EPWP will need to reach 1.5 million people per year or more Expanded public service Scale and salary levels Minimum wages &/or wage subsidies Dramatic expansion in bursary programmes for post school learning Dramatically expanded support to agriculture as livelihood support Social grants Improved access to health and retirement funds and services Substantial investments in public transport systems Alongside other major investments in social and economic infrastructure and institutions – energy, transport, education, health, etc

(crude) Indicative public budgets at different growth rates Assumes: non-interest spending grows 25% faster than GDP EPWP is only opportunity to address residual unemployed versus combination of special interventions no change in borrowing Other major expenditure items: social grants social infrastructure backlog economic infrastructure (eg eskom)