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Surviving unemployment without state support: Unemployment and household formation in South Africa

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  • Stephen Klasen
  • Ingrid Woolard

    ()
    (SALDRU, School of Economics, University of Cape Town)

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, 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 response draw some of the unemployed away from employment opportunities, and thus lowers their employment prospects.

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Bibliographic Info

Paper provided by Southern Africa Labour and Development Research Unit, University of Cape Town in its series SALDRU/CSSR Working Papers with number 129.

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Date of creation: 2005
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Handle: RePEc:ldr:cssrwp:129

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  1. Arulampalam, Wiji & Stewart, Mark B, 1995. "The Determinants of Individual Unemployment Durations in an Era of High Unemployment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(429), pages 321-32, March.
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  3. Case, A. & Deaton, A., 1996. "Large Cash Transfers to the Elderly in South Africa," Papers, Princeton, Woodrow Wilson School - Development Studies 176, Princeton, Woodrow Wilson School - Development Studies.
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  7. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(462), pages C1-33, March.
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  10. 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.
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  12. 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.
  13. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
  14. Toni Richards & Michael White & Amy Tsui, 1987. "Changing living arrangements: A hazard model of transitions among household types," Demography, Springer, Springer, vol. 24(1), pages 77-97, February.
  15. Borsch-Supan, Axel, 1986. "Household formation, housing prices, and public policy impacts," Journal of Public Economics, Elsevier, Elsevier, vol. 30(2), pages 145-164, July.
  16. 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, University of Chicago Press, vol. 87(3), pages 479-500, June.
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