South Africa’s labour market slack persisted in 1Q21, unemployment rate remains elevated

Thanda Sithole, Economist at FNB

Stats SA’s Quarterly Labour Force Survey (QLFS) data showed the economy lost 28 000 jobs in 1Q21 relative to 4Q20, while unemployment increased by 8 000 over the same period. Subsequently, the labour force declined by 20 000, resulting in the official unemployment rate of 32.6% compared to 32.5% in 4Q20 – i.e. official unemployment continued ticking up, reaching the highest level since 1Q1994.

We note that the momentum in the quarterly job gains in the last two quarters of 2020 slightly reversed in 1Q21. Worryingly, the level of employment was still 8.5% (or about 1.4 million), materially lower in 1Q21 relative to 1Q20, while unemployment was 2.5% (or about 172 000) higher over the corresponding period. The population not economically active, neither unemployed nor employed, was up by 11.6% (or about 1.8 million) in 1Q21 relative to 1Q20.

This reflects sustained slack in the labour market amid the profound and lingering impact of the pandemic. It also corroborates our view that employment gains are likely to be modest over the near to medium-term horizon due to the hysteresis nature (i.e. lagged response) of the labour market around the business cycle following an economic shock. The continued weakness in the labour market alongside the ongoing economic slack implies that labour unions’ bargaining power will remain diluted and that aggregate labour income growth could be modestly constrained. This will have implications for the degree of the rebound in overall private household consumption expenditure growth. We note that some employees were still getting paid at reduced salaries in 1Q21, although this proportion was lower relative to 4Q20.

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