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Surviving Unemployment without State Support: Unemployment and Household Formation in South Africa

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  • Klasen, Stephan

    ()
    (University of Göttingen)

  • Woolard, Ingrid

    ()
    (University of Cape Town)

Abstract

High unemployment in many OECD countries is often attributed, at least in part, to the generosity and long duration of unemployment compensation. It is therefore instructive to examine a country where high unemployment exists despite the near complete absence of an unemployment insurance system. In South Africa unemployment stood at 23% in 1997 and the unemployed have no unemployment insurance nor informal sector activities to fall back on. This paper examines how the unemployed are able to get access to resources without support from unemployment compensation. Analysing a household survey from 1995, we find that the household formation response of the unemployed is the critical way in which they assure access to resources. In particular, unemployment delays the setting up of an individual household of young people, 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, non- contributory 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 responses draw some unemployed away from employment opportunities and thus lowers their employment prospects. The paper discusses the implications of these findings for debates about unemployment and social policy in South Africa and in OECD countries.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 237.

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Length: 40 pages
Date of creation: Dec 2000
Date of revision:
Publication status: published in: Journal of African Economies, 2009, 18 (1), 1-51
Handle: RePEc:iza:izadps:dp237

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Keywords: incentive effects; Unemployment; household formation; South Africa;

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References

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  1. Toni Richards & Michael White & Amy Tsui, 1987. "Changing living arrangements: A hazard model of transitions among household types," Demography, Springer, vol. 24(1), pages 77-97, February.
  2. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  3. Olivier Blanchard & Justin Wolfers, 1999. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," NBER Working Papers 7282, National Bureau of Economic Research, Inc.
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  5. Bentolila, Samuel & Ichino, Andrea, 2000. "Unemployment and Consumption: Are Job Losses Less Painful near the Mediterranean?," CEPR Discussion Papers 2539, C.E.P.R. Discussion Papers.
  6. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  7. Klasen, Stephan, 2000. "Measuring Poverty and Deprivation in South Africa," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 46(1), pages 33-58, March.
  8. Marianne Bertrand & Sendhil Mullainathan & Douglas Miller, 2003. "Public Policy and Extended Families: Evidence from Pensions in South Africa," World Bank Economic Review, World Bank Group, vol. 17(1), pages 27-50, June.
  9. Arulampalam, Wiji & Stewart, Mark B, 1995. "The Determinants of Individual Unemployment Durations in an Era of High Unemployment," Economic Journal, Royal Economic Society, vol. 105(429), pages 321-32, March.
  10. Bardhan, Pranab K, 1979. "Wages and Unemployment in a Poor Agrarian Economy: A Theoretical and Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 479-500, June.
  11. Case, A. & Deaton, A., 1996. "Large Cash Transfers to the Elderly in South Africa," Papers 176, Princeton, Woodrow Wilson School - Development Studies.
  12. Paul Gregg, 1996. "It Takes Two: Employment Polarisation in the OECD," CEP Discussion Papers dp0304, Centre for Economic Performance, LSE.
  13. David T. Ellwood & Lawrence H. Summers, 1985. "Poverty in America: Is Welfare the Answer or the Problem?," NBER Working Papers 1711, National Bureau of Economic Research, Inc.
  14. Marianne Bertrand & Douglas Miller & Sendhil Mullainathan, 1999. "Public Policy and Extended Families: Evidence from South Africa," Working Papers 801, Princeton University, Department of Economics, Industrial Relations Section..
  15. Woolard, Ingrid & Klasen, Stephan, 2004. "Determinants of Income Mobility and Household Poverty Dynamics in South Africa," IZA Discussion Papers 1030, Institute for the Study of Labor (IZA).
  16. Steiner, Viktor, 1997. "Extended benefit entitlement periods and the duration of unemployment in West Germany," ZEW Discussion Papers 97-14, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  17. Borsch-Supan, Axel, 1986. "Household formation, housing prices, and public policy impacts," Journal of Public Economics, Elsevier, vol. 30(2), pages 145-164, July.
  18. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 347-68, September.
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