LABOUR ALLOCATION AND UNEMPLOYMENT IN SOUTH AFRICA*
| Date | 01 May 1978 |
| Published date | 01 May 1978 |
| DOI | http://doi.org/10.1111/j.1468-0084.1978.mp40002002.x |
| Author | J. B. KNIGHT |
LABOUR ALLOCATION AND UNEMPLOYMENT
IN SOUTH AFRICA*
By J. B. KNIGHT
1 INTRODUCTION
The process of economic development is commonly interpreted as the expansion
of the modern, or capitalist, sector of an underdeveloped economy, and the cor-
responding absolute or relative contraction of the traditional, or pre-capitalist,
sector. As labour is re-allocated to the sector with higher productivity, so output
increases. Labour supply to the modern sector is initially perfectly elastic at a
wage governed by the average product of labour in the traditional sector. The
modern sector surplusthe difference between average productivity and the wage
is re-invested, and it is this capital formation which is responsible for the process
of development. If the modern sector wage is competitively determined, it remains
roughly constant until the supply curve of labour from the traditional sector
begins to slope upwards. This upward slope occurs, first, because the terms of trade
improve as the marginal product of labour becomes positive and output therefore
falls in the traditional sector; and, secondly, as the marginal product of labour in
the traditional sector rises above the initial modern sector wage. When the market
wage begins to rise, the economy moves from the classical to the neo-classical
stage in the development process. In addition to capital-widening, capital-
deepening now occurs.1
This view of the development process is not without its critics. There are ways
in which the expansion of the modern sector can harm the people remaining in the
traditional sector, e.g. through both market and political competition for scarce
resources. Nevertheless, the relative development of the modern sector should
cause the supply price eventually to rise, reflecting higher incomes for those
remaining in the traditional sector and higher wages for those employed in the
modern sector. This is a potentially powerful way in which the labour force in a
market economy can benefit from development even in the absence of benevolent
government politics. A process of this sort has occurred in a variety of the
currently developed economies.
It appears that this process is making little headway in most of the currently
underdeveloped economies. They face rapid growth of population and of the
labour force, a modern sector accounting for only a minority of employment, and
low rates of modern sector growth. Even when modern sector growth is rapid,
* I have benefited from comments by Keith Griffin, Arthur Hazlewood and the Editors.
A different version of this paper was delivered under the title 'Labour supply in the South
African economy and its implications for agriculture' at the South African Labour and Develop-
ment Research Unit (SALDRU) Conference on Farm Labour in South Africa, University of
Cape Town, September 1976, and subsequently published in Francis Wilson. Alide Kooy and
Delia Hendrie (eds), Farm Labour in SouM Africa, David Philip, 1977.
1Accounts of the process can be found, for instance, in W. Arthur Lewis, 'Development with
unlimited supplies of labour', The Manchester School, May 1954, and Gustav Ranis and John
C. H. Fei, 'A theory of economic development'. American Economic Review, September 1961.
93
94 BULLETIN
growth of labour productivity retards the growth of modern sector employment.
Very few hard facts are available owing to the paucity and inadequacy of data, but
it appears that the proportion of the labour force engaged in the traditional sector
is falling only slightly if at all in most developing countries, and that the absolute
number of workers residually absorbed into the traditional sector is increasing in
all of them.2
South Africa provides an interesting case of an economy neither developed nor
underdeveloped but at an intermediate stage. By some criteria South Africa in
the period since 1945 is an example of successful capitalist development. Between
1946 and 1960 G.D.P. grew by 4.6% per annum at constant prices, and between
1960 and 1975 by 5.3% per annum. There is a large and dominant modern sector,
of which manufacturing is the biggest component: in 1970 manufacturing accounted
for 23% of G.D.P. and exceeded the combined size of the two sectors which
formerly dominated the economy, mining and commercial agriculture.
But South Africa resembles the majority of less developed countries in its
abundance of unskilled labour, much of which is African. The number of Africans
classified as 'economically active' in 1970 was 5.6 million, of whom only 0.8 million
were engaged in industry. The more important sources of African employment
were the tertiary sector (1.5 million) and agriculture (2.0 million), which take up
residual labour in activities with low productivity. Africans who do not obtain
modern sector jobs are mainly absorbed into low-income activities in the so-called
'homelands' (or 'bantustans', or 'reserves'): those areassome 13% of the land
area of South Africawhich are officially reserved for African occupation.3 In
1970, 33% of Africans were resident in the urban areas, 24% in the rural areas
outside the homelands, and 43% in the rural homelands. Many Africans employed
in the modern sector outside the homelands are officially regarded as legally
resident in the homelands and temporary migrants to 'White' South Africa. In
the extent of the imposed migrant labour system, as in various other respects, the
South African economy is sui generis. The reserves are heavily populated, and
most of their economic activity is small-scale family farming for self-consumption.
The population and labour force are growing rapidly: between the censuses of 1960
and 1970 the recorded growth of African population was 3.2 per annum.
It is therefore important to ask: is South Africa running out of its supplies of
relatively unskilled labour? Or is there a growing 'reserve army' of unemployed
or underemployed manpower building up in the reserves? The answers to these
questions are important in making economicand indeed social and political-
projections for South Africa.
Consider the 'optimistic' view. If employment in the modern sector can grow
in absolute terms more rapidly than the labour force, the amount of labour in the
traditional sector is reduced. As labour is withdrawn from the subsistence sector,
its supply price rises, labour shortages appear, and real wages are bid up by market
2 For a survey of evidence see David Turnham, The Employment Problem in Less Developed
Countries. A Review of Evidence, O.E.C.D., 1971, esp. Ch. V.
'Homelands', the description officially and most commonly employed in South Africa, is
used here without acceptance of the value judgment implicit in the term. The term 'reserves'
most accurately describes their economic function.
LABOUR ALLOCATION AND UNEMPLOYMENT IN SOUTH AFRICA 95
forces. The shortage of labour, combined with its greater cost, provides employers
and government with a powerful economic incentive to raise the quality of labour
through education, training and stabilization, and to embark on capital-deepening.
A process of this sort is an integral part of the story of those who make 'reformist,
predictions for South Africa.
Consider the alternative possibility, which might be termed the 'pessimistic'
view. If the growth of employment in the modern sector falls short, in absolute
terms, of the growth of the labour force, increased numbers are necessarily absorbed
into the traditional sector. Given the limited land and limited demand for non-
f arm activities in this sector, unemployment or underemployment is increased and
average income is depressed. If unskilled wages in the modern sector are compe-
titively determined, the reduced opportunity cost of labour is likely to depress
capitalist sector wages also. However, if modern sector wages are raised above
market-determined levels through institutional or political pressures, a growing
income disparity develops between those who have modern sector jobs and those
who do not: poverty is not eliminated and the poor grow in number over time.
In these circumstances a 'reformist' solution to South Africa's problems is more
difficult to envisage. Another question would also be raised: if South Africa with
its large modern sector and rapid economic growth cannot move towards full
employment, what chance have the less developed market economies of doing so?
Whether or not the growth of modern sector employment is gaining on that of
the labour force is a matter currently exciting considerable debate in South Africa.
That there is disagreement on what would appear to be a straightforward matter
reflects in part the paucity and inadequacy of the available evidence. By the
standards of less developed countries South African statistics are not weak.
Indeed, it is the availability of various cross-checks that reveals the inaccuracies
and inconsistencies of data which might otherwise be concealed. But there is one
respect in which South African statistics are uniquely poor: the elaborate system
of 'influx control' over the movement of rural Africans into the urban areas
provides an incentive for those who evade the regulations also to evade census
enumeration.
Most economists, looking at the available statistics, have tended to the view
that there is a large and growing labour surplus in South Africa. However, the
official economic development programme document takes a sanguine view in its
projections. The debate has extended into political and business circles. The
reason for government concern is suggested by the statement made by Prime
Minister Vorster in 1970: 'the biggest danger in South Africa today is not terrorism
but unemployment'.4 On the other hand, there is a fear found among businessmen,
particularly in the mining industry, that supplies of suitable unskilled labour are
drying up. Labour shortage has been the perennial complaint of organized
farming and mining, the two low-wage sectors. Moreover, recent wage behaviour
is difficult to explain except in terms of labour shortage, actual or feared. Between
June 1972 and June 1975 the minimum cash wage in mining more than quadrupled,
Quoted by David Vudelman, 'Industrialisation, race relations, and change in South
Africa', African Affairs, January 1975, p. 82.
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