Globalisation and the demand for skills in South Africa

Since 1990, South Africa has experienced substantial changes in its composition of formal employment. Between 1990 and 1998, formal employment of semi-skilled and unskilled labour declined by 19 per cent (700 000 jobs), while employment of highly skilled professional and managerial labour rose by 12 per cent (80 000 jobs). Is this a consequence of the ambitious tariff liberalisation programme embarked upon or other factors such as skill-biased technological change?

Research conducted as part of the UK’s Department for International Development (DFID) research programme on globalisation and poverty provides insight into the relationship between trade, technology and employment in South Africa. For instance, the average tariff on products imported into South Africa fell from 29 per cent in 1990 to 11 per cent in 2000. The reduction in protection against imports can increase unemployment if South African firms close down or reduce their production in response to import competition. Firms may also adopt new technology that favours skilled labour in an attempt to raise productivity and thus remain competitive against cheaper imports. Despite the large reduction in tariff levels, the direct impact on employment is obscured by the many other policy reforms that occurred after the election of the democratic government in 1994. These reforms were far reaching and included:

• the writing of a new constitution
• a new macro-economic strategy guiding, among others, government expenditure, inflation targeting, infrastructure development, exchange rate controls and tax incentives
• new labour legislation governing the hiring and firing of workers, the setting of minimum wages and working conditions within bargaining councils, the training of workers and affirmative action to correct the racial imbalance in employment
• an overhaul of all the discriminatory social and welfare policies relating to education, health care, land redistribution, housing, the provision of water and electricity and social grants.

Skill-biased technological change, as reflected in the advances made in microelectronics and information and communication technology, has also raised the demand for skilled labour. Finally, real wage growth in excess of 2.5 per cent a year during the 1990s suggests that labour market factors have also influenced employment patterns. Various firm level and industry sector level data were used to isolate these various effects on employment.

Five conclusions can be drawn from these studies:

• Manufacturing export growth has been strong, but has become more capital- and skill-intensive. At the same time, import penetration has risen, particularly in labour-intensive sectors such as leather products, footwear and wearing apparel. The composition of net trade (exports/imports) in South Africa is thus becoming more skill-intensive.
• Although trade liberalisation has negatively affected employment in large import-competing firms, the impact is too small to account for the full decline in employment experienced during the 1990s. Firms negatively affected by trade liberalisation account for between 9 per cent and 22 per cent of the overall decline in employment.
• Trade liberalisation has improved export competitiveness, but this has not led to substantial increases in employment within export firms. Export and foreign-owned firms have shed unskilled-labour to raise labour productivity and improve export performance.
• Despite the structural shift in the composition of trade, employment lost through import penetration is matched by employment gained through export growth. However, the capacity for future export growth to generate employment of unskilled labour has diminished.
• The rising skill intensity of production is prevalent across all sectors and the majority of firms. This process is closely associated with the adoption of skill-biased technology, as reflected in investment in computer hardware and software. Foreign ownership also facilitates the transfer of skill-biased technology.

The results suggest that trade liberalisation and technological change have placed downward pressure on the demand for unskilled labour during the 1990s. Export production and foreign direct investment (FDI) require skilled labour and are unlikely to substantially alleviate unemployment of unskilled labour.

What are the policy implications?

• Social welfare grants, public works programmes and training programmes need to be considered to alleviate the plight of unskilled workers who are unemployed. Because of past discriminatory education and employment policies, the unemployed will largely be black workers.
• Productivity growth combined with wage moderation will improve the competitiveness of South African production and through this, employment. Evidence suggests that a 1 per cent increase in labour productivity increases exports by 1.9 per cent in the long run.
• Rapid advances in technology which complement skilled labour emphasise the importance of improving the educational quality of South African labour.

Lawrence Edwards
School of Economics
University of Cape Town
Rondebosch 7701
South Africa

F +27 (0)21 650 2854

Ledwards@commerce.uct.ac.za

See also

‘Globalisation and the skill bias of occupational employment in South Africa’, in South African Journal of Economics, 69, 1: 40-71, L. Edwards, 2001

‘A firm level analysis of trade, technology and employment in South Africa’, DFID CSSR Research Programme on Globalisation and Poverty Discussion paper 5, L. Edwards, 2000

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