Don’t be fooled by the latest unemployment rate – Here is the truth

Statistics South Africa released its latest Quarterly Labour Force Survey for the second quarter of the year, which states that the country’s unemployment rate declined by 6.8%.

This may seem strange, as the survey further revealed that the South African economy shed 2.2 million jobs in the second quarter.

The number of employed persons decreased from 16.3 million to 14.1 million over the reporting period.

“This unprecedented change is the largest quarter one to quarter two decline since the survey began in 2008,” Stats SA said.

This raises the question of how the official unemployment rate could decline when there are more unemployed people.

Stats SA explains that the official unemployment rate is calculated using the number of persons who are employed and unemployed, but does not include discouraged work-seekers.

This means that somebody who is unemployed but is not actively looking for a job is not included in the unemployment rate calculation.

During the COVID-19 pandemic, there was a big increase in inactivity (not looking for a job) among unemployed people.

This skewed the numbers and resulted in a significant decrease of 6.8% in the official unemployment rate – from 30.1% in Q1 2020 to 23.3% in Q2 2020.

What economists say

Bureau for Economic Research chief economist Hugo Pienaar said the bottom line is that 2.2 million people lost their jobs and livelihood.

“Forget about the official unemployment rate for now – it will reverse again,” he said. “2.2 million jobs lost is the stark headline and should be the focus.”

He added that Stats SA induced change in its survey model because of COVID-19, with telephonic interviews being conducted instead of the normal face-to-face interviews.

The Q2 results are therefore not based on a full survey, so comparisons with previous quarters should be made with caution.

Economist Mike Schussler echoed Pienaar’s views, highlighting that the expanded rate of unemployment increased from 39.7% to 42%.

He said because many unemployed people were locked down and could not look for work, they were classed as not economically active.

“On the expanded definition it would also have had an impact as you have to be ready and willing to work within a week,” Schussler said.

“Fear would have made at least some people say they will not be ready to be employed within a week. This also hid the true disaster,” he said.

What the numbers really mean

The fully understand the official unemployment rate, it is important to look at how it is calculated.

  • Employed – A person between 15 and 64 who is considered to be employed if during the week before being surveyed they worked for a wage, salary, or commission or ran any kind of business by themselves or with other people. They will be categorised as “employed” even if they only worked for an hour in that week.
  • Unemployed – Someone is considered to be unemployed if they are capable of working or starting a business but had not done so. Furthermore, they would need to have actively looked for work or tried to start a business at some point in the four weeks preceding the survey.
  • Discouraged job-seeker – A person is regarded as a discouraged job-seeker if they wanted to work but there are no jobs in the area, if they were unable to find work that required their skills, or if they have lost hope of finding any kind of work.
  • Not economically active – A person is considered to be economically inactive if they were able and available to work in the week prior to the survey but did not work, did not look for work, and did not try to start his/her own business. This includes people such as university students and adults caring for children at home.
  • Labour force – The number of employed plus the unemployed

The calculate the official unemployment rate, the formula below are used:

Unemployment rate = Unemployed / Labour Force

This means that discouraged job-seekers and people who are not economically active are considered “out of the labour force” and therefore excluded from the unemployment calculation.

The table below provides an overview of the employment numbers for April to June 2020.

South Africa’s Unemployment Numbers
Definition Number of people
Employed 14.148 million
Unemployed 4.295 million
Labour force 18.443 million
Discouraged work-seekers 2.471 million
Not economically active 18.107 million
Not economically active 20.578 million

Number of adults working

Dividing the number of employed people by the number of unemployed, discouraged job-seekers, and not economically active adults tells the simple truth:

Only 36.3% of adults worked for at least one hour per week during the second quarter of the year.

This figure is represented as the “employed/population ratio” by Stats SA and gives a good idea of the jobs crisis in South Africa and the hard road ahead to reduce the true unemployment rate.

Hugo Pienaar comments

Mike Schussler comments

Now read: More than 2 million South Africans lost their jobs during lockdown

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Don’t be fooled by the latest unemployment rate – Here is the truth