Itumeleng Ledwaba LDWITU001
Group no.:51
Unemployment in the progression of the GEAR strategy
When the new, first democratic government of South Africa stepped to duty in 1994, a lot of work needed to be done, from the building of houses for the poor to equal rights for all. Therefore, the government had to come up with strong structures or rather policies to serve and develop the new democratic country. Hence RDP (the Reconstruction and Development Programme) was adopted to do as the name suggests: to reconstruct and develop the country. In 1996, the government adopted a new macroeconomic strategy called Growth, Employment and Redistribution (GEAR).
In this essay, I will analyse and discuss the main objectives of the GEAR strategy so as to evaluate the progression of the strategy since was first adopted in 1996.
In evaluating the progression of the GEAR policy, it is clearly not easy to isolate a single objective within the policy for analysis as these objectives are closely related or interdependent. Therefore considering the structures or tools available to implement the policy, a lot (such as the role of the South African reserve bank (SARB) and that of the government in achieving the goals outlined in the GEAR policy) needs to be analysed and discussed. Before I discuss the implications of the GEAR policy, I will highlight the key objectives of the policy. The GEAR policy aimed to achieve a 6% annual growth rate; to redistribute land, income, and opportunities in favour of the poor; and most importantly for the public, to create sufficient jobs for all work-seekers. i.e create 400 000 jobs a year by the year 2000. Since unemployment/ employment relates to inflation, growth etc, I’ll thoroughly discuss the GEAR policy’s progression around employment since adopted in the year 1996. South Africa reportedly had the highest rate of unemployment in the world in 1996, according to a comprehensive review of South Africa’s labour-market and economic developments, Endnote. Figure:1 Unskilled and semiskilled workers
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Figure1 above (source: Promoting Growth and Employment in South Africa, Jeffrey D. Lewis, June 2002) show us unemployment rate for the lower skilled labour categories. Clearly, since the GEAR policy was adopted in 1996, there has been a steady rise in unemployment, from the highs of approximately 50% unemployment rate in 1996 to approximately 57.8% in the year 2000, contrary to what was intended in the policy . The policy stated that it would create 400 000 jobs per year by the year 2000. “Almost half of the population lives in poverty, including many of the employed – the “working poor.” Unemployment and underemployment are on the rise as more jobs are shed and people rely on survivalist activities to make ends meet. The complex nature of the transition emerged in deeply contradictory government policies.” (COSATU policy statement, July 2001).
In the year 2000, the South African Reserve Bank (SARB) announced that it will use an inflation target policy, with a target of between 3 and 6. This rose a few eyebrows as most economically informed people know about the inverse relationship between inflation and unemployment in the short run. The public felt that inflation targeting side-lines the employment goal set out in the GEAR policy. “Rising unemployment and the recession have been the price that we have had to pay to get inflation down. That price is well worth paying.” ( Norman Lament, 1991).
Nevertheless, a good rationale behind the choice is argued to be that “unemployment will only be temporary and a necessary step to overcome the inflationary pressures in the economy”.( http://econ.economicshelp.org/2008/03/unemployment-price-worth-paying-for.html ).
The Term Paper on Price Level Unemployment Inflation Demand
... occur, the output decreases and the price level increases. Thus unemployment rate and inflation both increase. To control this the expansionary fiscal and monetary policy is ... fall. This decrease and increase in price level along with the fluctuations in unemployment, interest rates and output forms the business cycle that characterizes all ...
How? If inflation is high, the economy needs to slow down in order to reduce inflation. The government planned to reduce spending and increase taxes to reduce the budget deficit. I’ll discuss the intended (theoretical) outcomes and compare them to the actual outcomes of this plan, with respect to employment or lack thereof. I shall use the AD/AS and the IS/LM models to show the intended outcomes. Consider the figures below, figure2 and figure3.
Figure2
Figure3
Suppose the economy is at equilibrium (point A), with a natural national output of Yn , price level P1, and interest rate of i0. When the government reduces the deficit, the IS (goods market equilibrium) curve as well as the AD (aggregate demand) curve shift leftwards to IS’, causing a decrease in output to Y’, which in turn causes a decrease in the price level and interest rate. The directions of the changes are shown by the arrows on the graphs. In the short run, the decline in output may lead to workers being laid off due to cuts in production, leaving more people jobless at these lower prices and interest rates. Because the price level decreased, the real money stock increases, causing a downward shift of the LM (Money market equilibrium) curve to LM’. So long as output remains below the natural level, the price level will continue to decline, causing a further increase in the real money stock and the LM curve continues to shift downwards, while the AS curve keeps shifting to the right. Eventually, output will return to its natural level, with lower price levels and interest rates. Although output decreased in the short run, causing a plausible increase in unemployment, output returned to its natural level with lower price levels and interest rates. This justifies why employment was given the backseat despite COSATU’s criticism. Is this outcome reflected in the actual outcome? “Government policy as reflected in the GEAR document appeared to be an oxymoron: it is not enhancing growth, employment or redistribution. To the contrary, the growth rate since 1996 is on average only one per cent per annum, real per capita income has declined, almost 600 000 jobs have been abolished and the distribution of income has become more unequal.” (The Ideological Journey of South Africa: From The RDP to the GEAR Macro-economic Plan, S. J. Terreblanche, 16 February 1999).
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THE BIRTH RATE DECREASE PROGRAMS EFFECTS (OUTLINE) I. In any modern society, the importance of birth controlling has been approved. In fact, for prevailing welfare, it seems obligatory to control the number of births and prohibit numerous children within a single family. As a result of understanding the mentioned importance, Iranian government has used policies for controlling birth rate. These ...
One of the good indicators of a country’s capability to compete in the international market is the rise in labour productivity. Since 1994, there has been a steady increase in labour productivity. In this regard, South Africa was ranked 54 in the world in terms of competitiveness. “However, these productivity increases have taken place in a context where the manufacturing sector has been consistently shedding labour.” (SARB Conference 2006).
The labour-saving technological advances in various manufacturing sectors have led to the laying off of many unskilled and semi-skilled workers over the years, adding onto the already large pool of the unemployed. Also, there has been an influx of females in the labour force, causing a higher unemployment rate and reducing the bargaining power of those in the labour force. Therefore, wage rates remain low and leads to skilled workers seeking work elsewhere in the world. “In addition, a comparison of changes in private employment and total employment reveal some significant patterns. Before 2000, the rate of decline in private employment was almost always larger than the decline in total employment. This suggests that public employment helped to soften the blow of job losses in the private sector. However, beginning in 2000, total employment actually declined faster than private employment, suggesting that government employment policies are contributing to the unemployment crisis instead of moderating it. An increasing rate of unemployment has serious social consequences that extend beyond the loss of income of the newly jobless.”( Out of Gear? Economic policy and performance in post-apartheid South Africa,
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The objective of full employment is to have all of those in the economy who are able and willing to work, finding employment within the Australian economy. The labour force is made up of the employed and unemployed. The government considers that in order to be classified as employed you must be over 15 years of age, in paid employment, either full time part time or casual and working more then 1 ...
Conclusion: In a general overview, the GEAR strategy failed to reach its outlined targets of growth, employment or redistribution, despite the significant reduction in the budget deficit. By the year 2001, the economy grew by only 2.7% a year, which is less than halve of the intended outcome. Employment continued to shrink, seeing more than 1 million jobs destroyed since 1996. Employment was mentioned as 1 of the tools for the redistribution of income, which in my opinion is the most important tool. Although there has been growth, a reduction in the budget deficit and a rise in foreign investment, the ever increasing rate of unemployment leaves a big gap of inequality amongst the people of South Africa, which arguably causes the high levels of crime. Unemployment not only slows down the redistribution of income, but also suggests a waste of human resources which could be used to drive the economy in the right direction. The GEAR policy focuses more on the economic stability of the country at the cost of employment.
References
http://richardknight.homestead.com/files/sisaeconomy.htm
http://econ.economicshelp.org/2008/03/unemployment-price-worth-paying-for.html
http://www.treasury.gov.za/publications/other/growth/04-Labour%20Market%20Policy/02-TWO%20POLICIES%20TO%20ALLEVIATE%20POVERTY%20IN%20SOUTH%20AFRICA.pdf
http://www.info.gov.za/view/DownloadFileAction?id=70507
“FROM RDP TO GEAR TO POST-POLOKWANE”. THE ANC AND THE PROVISION OF SOCIAL SECURITY FOR POST-APARTHEID SOUTH AFRICA. Wessel Visser
Labour Force Survey, September 2000
