Employment down 2.1% in August: Adcorp

"Adcorp considers that one of the prime reasons for the nation's dismal employment picture is that government is crowding out private sector participation in the economy.

"Hence, while overall employment declined in August, employment by government continued to rise by a notable 6.2%.

Loane Sharp, Adcorp's labour market analyst, said the public sector now accounted for all the job creation in the economy for 2011 as a whole.

Adcorp revealed that August employment declined most sharply in the manufacturing (19.9%), mining (19.3%) and construction (16%) sectors.

The unofficial sector continued to create jobs, employing 16,917 additional people in August, enhancing the "informalisation" of the country's workforce.

Sharp pointed out that temporary work bore a close relationship to the economy's underlying health and might be considered a leading indicator of permanent employment conditions.

He maintained that permanent jobs, which were beset by legal and regulatory problems, were an unreliable indicator of business activity.

"In August, the capacity utilisation of temporary staff - the number of hours actually worked in relation to the number of hours per temporary worker - dropped to 74.6%, a decline of 8.1% at an annual rate and the worst decline in four months.

"Compared to a year ago, the number of temps increased by 4.5% in August but their average monthly working hours declined by 20.6%, prompting our 'exceedingly weak' prediction for the permanent jobs outlook."

Sharp noted that job creation tended to lag improvements in the economy by between 24 and 36 months.

He said that permanent jobs, which represented 47.3% of all jobs in South Africa, had the property that many economic conditions had to be met - among them sustained high economic growth, before employers would venture to risk employing someone on an indefinite basis.

"This is not to say that permanent work is secure or indefinite. All workers - temporary workers, agency workers, permanent workers, etc - are equally protected by labour legislation in South Africa. But section 189 of the Labour Relations Act (1995) permits an employer to dismiss an employee on the basis of operational requirements, termed 'retrenchment', the conditions for which are most easily demonstrated in the case of temporary and agency (labour broker) workers."

This, he maintained, made temporary work much more flexible than permanent work in practice, since the employer typically did not create an expectation of indefinite employment when engaging a temporary worker.

"The upshot is that temporary work follows economic activity fairly closely (correlation = 79.3%), since employers are able to use contract workers for fixed, typically short, durations on an as-needed basis."

Sharp said the advantages of employment flexibility - such as matching labour costs to variable production and sales volumes, and limiting employment to the duration of a project or specific investment programme - had given rise to a systematic upward growth path in temporary employment, which now represented 29.9% of total official employment.

"This would ordinarily make interpreting temporary employment growth difficult to interpret in relation to the economy, but several data transformations are possible that give great meaning to temporary employment data."

He cited as an example the definition of capacity utilisation of temporary workers as the number of hours actually worked in relation to the available hours per temp.

"When an individual temp's capacity utilisation approaches or occasionally exceeds 100%, it will usually be followed by the employment of additional temps. When the capacity utilisation of all temps across the country approaches 100%, it will usually be followed, either by the creation of more temporary positions, or by the use of permanent workers."

Capacity utilisation of temporary workers increased between January and December 2010, as the South African economy grew following the 2008/2009 recession. In January and February 2011, there was a brief lull in temp capacity utilisation, followed by resumed momentum during March and April.

But of greater interest, said Sharp, was the pattern in the past four months - a decline in temps' capacity utilisation from 98.3% in April to 74.6% in August, or the lowest level since February.

He contended that this was a telling indicator giving credence to the "double dip" theory that the South African economy was facing a further recession.

"To put this in context, permanent employment has now declined by 7.2%, or 989,239 jobs, since the beginning of the 2008/2009 recession - including 100 087 jobs lost since the economy began to recover in the post-recession period."