Abstract:
While in many African countries, open unemployment is largely confined to urban
areas and thus overall rates are quite low, in South Africa (and a few other Southern
African countries), open unemployment rates hover around 30%, with rural
unemployment rates being even higher than that. This occurs despite the near
complete absence of an unemployment insurance system and little labour market
regulation that applies to rural labour markets. This paper examines how
unemployment can persist without support from unemployment compensation.
Analysing household surveys from 1993, 1995, and 1998, we find that the household
formation response of the unemployed is the critical way in which the unemployed
assure access to resources. In particular, unemployment delays the setting up of an
individual household by young persons, in some cases by decades. It also leads to
the dissolution of existing households and a return of constituent members to parents
and other relatives and friends. Access to state transfers (in particular, noncontributory
old age pensions) increases the likelihood of attracting unemployed
persons to a household. Some unemployed do not benefit from this safety net, and the
presence of unemployed members pulls many households supporting them into
poverty. We also show that the household formation response draw some of the
unemployed away from employment opportunities, and thus lowers their employment
prospects.
