The Role of International Trade, Technology and Structural Change in Shifting Labour Demands in South Africa

by Haroon Bhorat, Carlene van der Westhuizen, Sumayya Goga

Trade-Supported Strategies for Sustainable Development Series • Issue Paper 17

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Structural reforms and the liberalization of foreign trade and investment have occurred all over the world. The majority of developing countries have embraced reforms that differ regarding the timing and speed of implementation but not in character. The economic model pursued has combined adjustment and stabilization reforms with the liberalization of foreign trade, increasing the level of competition in international markets.

As a result of their increased integration into the world economy, developing countries today are more exposed to the risks associated with external shocks. Indeed, most of them have suffered greatly from the decrease in global demand, the dr ying up of trade finance and the decline iinvestment and remittances resulting from the recent financial and economic crisis. While several developing nations have shown early signs of recovery, the crisis may have reversed modest progress towards poverty alleviation. Furthermore, social indicators suggest that natural rates of unemployment are likely to be higher in the future, prompting concerns about possible jobless growth.

For a small open economy like South Africa the impact of the crisis was quite significant: its economy experienced its first recession in the post-apartheid era, marking the end of a long period of positive GDP growth. Moreover, in the aftermath of the crisis, South Africa experienced an unprecedented collapse in employment, with about 800,000 workers losing their jobs. The crisis mainly affected the most vulnerable groups, that is young, African, male or female workers with incomplete schooling, severely affecting the situation in one of the countries with the highest unemployment rates in the world.

In the last few decades, South Africa undertook a series of reforms which have profoundly changed the structure of its economy by increasing its capital intensity and the role of a modern tertiary sector. Moreover, the country has developed its internal market and has progressively integrated into regional and international markets. Overall, the impact of trade on employment has been relatively benign, though unskilled or semi-skilled workers experienced job losses. Therefore, more interventionist policies are required to cope with this situation, which further worsened with the crisis.

This paper titled ‘The Determinants of Labour Demand Shifts in South Africa: The Role of International Trade, Technology and Structural Change’ by Haroon Bhorat, et al. (Development Policy Research Unit, School of Economics, University of Cape Town, South Africa) gives an overview of South Africa’s economic changes over the last few decades and analyzes the key factors that have shaped the economy’s chronic labour market crisis. Finally, it gives concrete recommendations to ameliorate the social consequences of trade liberalization and the crisis on the employment situation.

With this paper, which was published in combination with three other country-studies (Chile, Mexico, and India), ICTSD aims to contribute to a knowledge based debate on the impact of trade liberalization and the economic and financial crisis on trade and labour market. These studies also aim to inform the debate on whether development assistance and aid for trade in particular, can help to mitigate different impacts of the trade liberalization process and the crisis on the labour market.

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