Development Policy Research Unit by ihd49167


									Development Policy
  Research Unit
Annual Report 2007

Director’s Introduction......................................................................................................3

Research Projects:

Completed Projects.............................................................................................................4

Current Projects................................................................................................................14

Employment Promotion Programme.................................................................................16

Teaching and Training.......................................................................................................17

DPRU Research Associates................................................................................................18


About the DPRU..............................................................................................................20

DPRU Staff 2007..............................................................................................................21

    The DPRU research portfolio in 2007 was marked by a distinct focus on detailed labour market
    research – most with a high level of policy relevance. Indeed, a feature of this year has been the
    role that the DPRU has played in informing and arguably providing research leadership on the
    numerous labour market policy issues that continue to dominate the economic growth debates in
    South Africa.

    The projects which are prominent in our portfolio concentrate variously on the nature and extent
    of labour regulation in an international context the efficiency and effectiveness of the economy’s
    dispute resolution system and the role of bargaining councils in the labour market. This body
    of new and innovative labour market policy work was generously funded by the Department of
    Labour. Through this work, we have arguably made significant advances in our understanding
    of the workings of the South African labour market. Parallel to this research programme, was an
    intense and carefully constructed set of engagements amongst the social partners around labour
    market regulation. This was driven in a large part by the DPRU’s programme management role
    in the Employment Promotion Programme – a two-year project funded by the Department for
    International Development (DFID).

    Supplementing the ground-breaking labour market research have been a number of interesting
    and diverse projects – ranging from an update on non-income welfare shifts in South Africa to an
    overview of the Western Cape’s skills challenges. The novel study on the impact of inflation on the
    poor was also completed this year and we look forward to its release as a working paper.

    The DPRU as always, continues to feature widely in both the print and electronic media. Indeed it
    has become common cause for articles dealing with issues of poverty, inequality and labour markets
    to utilise one of the DPRU’s numerous studies as a source for robust, empirical and ultimately
    objective information. We hope that this academically credible, yet policy relevant work of the Unit
    continues into 2008.

    Haroon Bhorat


Understanding the Efficiency and Effectiveness of the Dispute
Resolution System in South Africa: An Analysis of CCMA Data

The study is a follow-up and extension of the initial analysis of the CCMA’s Case Management
System (CMS) database undertaken by Benjamin and Gruen (2006) for the selected financial years
in the period 2001/02 to 2004/05. This paper, while broadly located within the policy debate
around labour regulatory reform in South Africa, is specifically focused on one aspect thereof,
namely the dispute resolution system. We attempt to understand the efficiency and effectiveness
of the country’s institutionalised dispute resolution body, the Commission for Conciliation,
Mediation and Arbitration (CCMA). A better and more informed understanding of the nature of
dispute resolution and its determinants remains central to any detailed debate regarding labour
market institutions in particular and labour market regulation in general.

Ultimately then, the study intends to empirically verify the patterns of dispute referral, settlement
and determination regionally, sectorally and historically. In analysing efficiency, the study uses
various turnaround times captured by the CCMA, that is, the time taken for a dispute referred to
the CCMA to come to a conclusion. Econometric models are also estimated in order to understand
the determinants of turnaround times better. Separate models are estimated for conciliation and
arbitration cases for each financial year separately using separate annual datasets as well as the
pooled dataset. Independent variables used include regional offices, sector of employment, types
of disputes and, in the case of arbitration cases, the award details and whether legal or other
representation was available to either parties in the dispute.

The study concludes, firstly, that observed variations in measured efficiency across regions
and financial years cannot be viewed as resulting from unexpected structural or compositional
shifts in dispute referrals, nor high or unexpected growth in referrals. Instead, it is argued that
regional variations in turnaround times or other efficiency measures are a function primarily of
regional differences in organisational effectiveness and management. Secondly, the paper refutes
the perception that domestic and agricultural worker disputes are disproportionate in number
and that they take longer to resolve. Given the particular nature of disputes from these workers
certain additional measures have been introduced by the CCMA to deal with them, but there is no
reason to deal with these cases in a wholly separate institution. Thirdly, it is found that the newly
introduced ‘con-arb’ process is associated with a drop in turnaround times for both conciliation
and arbitration cases. A fourth conclusion pertains to atypical forms of employment and dispute
resolution. The suggestion is that the CCMA should take a bigger responsibility for monitoring the
impact of atypical forms of employment on the incidence and nature of labour market disputes.
Fifth, the CCMA should also monitor more closely the use of part-time commissioners and the
impact this has on efficiency and costs of the dispute resolution processes within the CCMA.
Sixth, while each individual’s right to a fair hearing should be respected, the impact of legal
representation at arbitration cases in terms of turnaround times and ‘over-proceduralisation’ of the
dispute resolution process should be monitored by the CCMA. Finally, and relating to the first,
is the notion that regional variations in efficiency should be investigated internally. Ultimately
management at a regional office level should be held accountable for poor performance in terms of
turnaround times of disputes and overall efficiency levels.

The project was commissioned and funded by the Department of Labour.


    Analysing Wage Formation in the South African Labour Market:
    The Role of Bargaining Councils

    Bargaining councils (known as industrial councils before 1995) are the key institutions involved in
    the statutory system of collective bargaining and wage determination in the South African labour
    market. A bargaining council can be established by one or more registered trade unions and one or
    more registered employer organisations for a specific sector and area. Worker interests are therefore
    represented at a bargaining council by the party trade unions. Both trade unions and bargaining
    councils have been claimed to be contributing to labour market inflexibility, and specifically wage
    inflexibility. The extensions of wage agreements to non-bargaining council members and non-
    union members are deemed to be particularly problematic and it has been have argued that these
    extensions place unnecessary burdens on small and new businesses and contributes to the high
    unemployment rate in the country

    The main objective of this study is to evaluate the role of bargaining councils in wage formation
    in the South African labour market. Specifically, the study aims to determine what premium is
    associated with Bargaining Council membership as distinct from Union membership, for employees
    in the South African labour market.

    It was found that in 1995, workers in the bargaining council-non-union cohort only enjoyed a
    small wage premium relative to workers who were not covered by any institutional wage agreement.
    Workers in the union-bargaining council cohort did not enjoy any significant benefit in terms of
    average earnings. The establishment of the PSCBC, however, resulted in significant wage premia
    being associated with public sector bargaining council membership in 2005. The decline of the
    private sector bargaining council system, in turn, resulted in the membership of these councils not
    offering any wage premium to their members who were not unionised – a contrast from a decade
    earlier. Workers who belonged to both a union and bargaining council in 2005 did, however, enjoy
    a wage premia. The wage premium associated with union membership, however, remains very
    strong between 1995 and 2005.

    The project was commissioned and funded by the Department of Labour.


Minimum Wages, Employment and Household Poverty:
Investigating the Impact of Sectoral Determinations

The study evaluates the potential welfare effects of minimum wages in the South African economy
as stipulated in various sectoral determinations, with a specific focus on employment and poverty
effects. Sectoral determinations covering retail and wholesale trade workers, domestic workers,
farm and forestry workers, taxi operators, security workers, employees in the hospitality industry
and contract cleaning workers are included. Available evidence on the wage elasticity of labour
demand in various economic sectors in South Africa is used to estimate, at a sectoral-level, the
possible disemployment effects of minimum wages, assuming varying degrees of compliance by
employers. Data from the Labour Force Survey (September 2000) and a micro-simulation model
are used to identify those individuals that are most likely to lose their jobs as a result of minimum
wages. By linking these individuals and those remaining in employment and benefiting from higher
wages back to their respective households using the Income and Expenditure Survey (2000), it is
possible to infer the various welfare effects in terms of income gains or losses, and hence changes
in poverty levels. In addition, the economy-wide effects of wage changes, job losses and income
fluctuations are analysed in a Computable General Equilibrium (CGE) model for South Africa.
While this model is less focused on the micro-level effects than the micro-simulation model, it
adds further value to the analysis in that it considers all general equilibrium or feedback effects of
household income changes.

The project was commissioned and funded by the Department of Labour.


    The Determinants of Labour Demand Shifts in South Africa:
    The Role of International Trade, Technology and Structural Change

    South Africa’s relatively peaceful transition from minority rule to majority rule in 1994 masked
    the challenges that lay ahead in terms of dealing with the economic vestiges of the system of racial
    exclusivity. The post-apartheid labour market challenge is two-fold: Firstly, South Africa has one
    of the highest unemployment rates in the world – officially at 26.7 percent and 38.8 percent when
    discouraged workers are included. Secondly, alongside this excess supply of labour, the economy for
    a variety of historical reasons has experienced a rapid increase in the demand for educated workers
    – the upshot of which has been an ongoing and severe skills shortage.

    The core of the paper is a detailed attempt at outlining the key factors that have shaped the
    economy’s chronic labour market crisis. In particular, we focus on the different forces that have
    shaped labour demand trends in the apartheid and post-1994 period. We attempt to explain the
    relative contributions of structural shifts in the economy, technology and international trade,
    respectively, in determining the labour demand trajectory of the economy over the last three and a
    half decades.

    The historical data (1970-1995) indicates increasing capital intensity of production accompanied
    by structural changes in the South African economy, with the tertiary sector accounting for a
    growing share of GDP. The post-apartheid labour market has seen a continuation of growth of
    the tertiary sector accompanied by growth in the sector’s aggregate employment, as well as an
    intensification of the skill-biased labour demand trajectory already established in the pre-1994

    A decomposition exercise shows that within-sector forces were more dominant in explaining
    changing labour patterns than between-sector forces in the 1970-1995 period, as well as the
    1995-2005 period. This implies that the sources of within-sector shifts such as technology change
    and outsourcing of non-core functions were more important than trade flows in influencing the
    changes in the demand for labour. In addition, when the changes in relative demand for labour
    are decomposed to isolate the specific impact of trade, it is found that the overall impact of
    international trade on employment has been relatively benign, with only agricultural workers in
    1970-1995 and production workers in 1995-2005 experiencing actual job losses. Indeed, it is not
    evident whether the impact of trade has been statistically significant. In terms of the South African
    labour market, however, given the various influencing factors, the losers have been unskilled
    labourers, specifically unskilled African workers. The winners, invariably, have been better
    educated, skilled workers who in turn have been disproportionately White and Asian.

    The paper was commissioned by the International Centre for Trade and Sustainable Development
    (ICTSD) Project on Trade Adjustment Assistance – The Impacts of Trade Liberalization on the
    Labour Market Sector


 Human Resource Development Review for the HSRC

 One of the major criticisms of the new democratic government relates to the economy’s perceived
 inability to deliver increased employment, encapsulated in the popular discourse by the term
 ‘jobless growth’. This study, published in the Human Resources Development Review 2008 by
 HSRC Press, interrogates the data on employment more closely, analysing the empirical basis for
 this argument.

 The paper suggests that the ‘jobless growth’ characterisation of South Africa’s recent economic
 performance is undeserved and erroneous, and argues that it arises through a combination of
 poor data quality, inappropriate time coverage and confusing correlation with causation. The
 employment data on which the argument has been based excludes agriculture and the informal
 sector by definition and, over time, has varied in exact coverage. The argument has also, through
 reliance on simplistic methods, confused correlation with causation. Econometric analyses,
 controlling for at least some of the multitude of factors that impact on the economy and using the
 same employment data, have been unable to show that growth was jobless. According to nationally
 representative household surveys undertaken by Statistics South Africa, employment has increased
 from 9.5 million in 1995 to 12.3 million in 2005, equivalent to an average annual growth rate of
 2.6 percent.

 At a disaggregated level, however, certain sectors and occupations may, and did, experience
 jobless growth. In the context of a rapidly expanding tertiary sector, in terms of both output and
 employment, the two primary sectors – agriculture, forestry and fishing, and mining and quarrying
 – arguably did experience jobless growth, with employment contracting by between one-quarter
 and one-third over the decade despite positive output growth. Overall, low-, medium- and high-
 skill classifications all experienced positive employment growth, with the employment of skilled
 workers growing most rapidly and that of low-skilled workers least rapidly, resulting in a gradual
 shift in the composition of employment towards more skilled occupations.

 The key underlying contribution of the analysis is to reiterate the importance of data and data
 quality in ensuring that appropriate and accurate analytical deductions are made, particularly in an
 area that remains at the core of this economy’s long-run growth and development trajectory.

Web access for this research is at:


    The Provincial Economic Review and Outlook �
    Western Cape Provincial Treasury

    In 2007, the Development Policy Research Unit continued its involvement in the Western Cape Provincial
    Treasury’s Provincial Economic Review and Outlook, by providing input into a chapter focused on the
    provincial labour market. This year, the chapter was authored jointly by the DPRU and economists in
    Provincial Treasury.

    PER&O 2006 identified an important issue related to employment growth namely that, while the formal
    sector appeared to be growing, the informal sector was lacklustre and did not appear to be generating new
    employment. In fact, informal sector employment appeared to be stagnant at best, preventing the sector
    from making a greater contribution to the provincial economy.

    While overall employment growth in the province has been relatively slow, if at all, this has been because
    of the divergent performances of the formal and informal sectors. The formal sector performance has been
    good, with employment growing by approximately 216 000 jobs over the first half of the decade. In con-
    trast, however, informal sector employment has declined from 225 000 jobs in 2000 to 174 000 in 2005,
    mirroring closely the overall South African experience over the period. The informal sector, though, should
    not be viewed as a panacea for the unemployment crisis. Despite it playing an important role in sustaining
    millions of South Africans, it is important to remember that informal sector employment is, relative to
    formal sector employment, inferior in many respects.

    Lack of compliance with labour, safety and minimum wage legislation, combined with very little bargaining
    power on the part of informal sector workers, means that they are often employed on a temporary, casual
    or seasonal basis, less likely to have written contracts or paid leave and less likely to have their employers
    pay pension or retirement contributions or UIF deductions. This leaves informal sector workers open to
    exploitation while they work and vulnerable to poverty once they no longer are able to work.

    The informal and the SMME sectors face various constraints to their growth and prosperity. Problems in
    terms of access to finance, training, infrastructure and services, as well as the regulatory environment and
    poor bargaining power all work to limit enterprises’ growth and performance. One of the most important
    issues is the low skills and educational levels that characterise these sectors. The skills lacked by workers
    in these enterprises range from basic literacy and numeracy to life skills, such as assertiveness, to general
    and specific business skills, including basic accounting concepts. Provision of training to workers in this
    sector in a way that is flexible and responsive to the trainees’ needs is critical for improved performance
    and incomes.

    Beyond training, provincial and local governments have important roles to play in creating an enabling,
    small business-friendly environment. One notable example is the role of local government in ensuring that
    registration, licensing and other regulations relating to informal enterprises do not stifle growth, but rather
    embrace informal sector operators as an important group within the broader economy.

    In particular, experiences of other South African cities reveal that policymaking must be proactive, with
    active steps being taken to identify, understand and eliminate problems that constrain this sector and limit
    its contribution to the achievement of our society’s ideals.

    This report can be accessed at:


Skills Development Strategy Review of the Western Cape
Situational Analysis

The South African economy is characterised by on the one hand, high levels of unemployment, but
on the other hand severe shortages of skills demanded by the economy. Critical shortages exists across
the high- and semi-skilled spectrum, ranging professionals such as engineers to artisans and technically
trained workers, such as electricians, technicians, mechanics, etc. In addition, most industries are
experiencing shortages at the senior- and middle-management level. Compounding the problem is the
legacy of the apartheid education system, with the quality of education and training varying widely
across institutions and population groups.

When the national government released its Accelerated and Shared Growth Initiative for South Africa
(ASGISA) in 2005, skills shortages and the poor quality of education was identified as one of the
binding constraints to accelerated economic growth in South Africa. As a result, skills development
and education was identified as one of the priority areas for government intervention.

At a provincial level, the vision and strategic objectives from ASGISA are encapsulated in the Western
Cape Provincial Growth and Development Strategy (known as iKapa GDS). iKapa GDS identified
the lack of appropriate skills as one of the key obstacles or binding constraints to higher and shared
economic growth at provincial level. Targeted skills development as well as addressing the current skills
mismatch have been identified as two key policy interventions to increase economic participation and
put the Western Cape Province on a path to achieve its targeted economic growth rate of between six
and eight percent in the next five years.

The purpose of this situational analysis is to provide the empirical foundation for the development of
a skills development strategy for the Western Cape Province. The situational analysis consists of three
parts. The first part is a descriptive overview of supply and demand trends in the Western Cape labour
market. The second part provides an overview of the institutional and legislative landscape pertinent
to a skills development strategy for the province. The final section highlights, based on the descriptive
overview and the legislative and institutional considerations, specific areas for policy intervention.

This study was commissioned by the Policy Development Unit, Department of the Premier, Western
Cape Provincial Government


     Welfare Shifts in the Post-Apartheid South Africa:
     A Comprehensive Measurement of Changes

     The objective of this study was to provide a comprehensive measure of shifts in welfare in post-
     apartheid South Africa by examining changes in both income and non-income welfare between
     1993 and 2005. Previous research using expenditure or consumption-based measures of income
     has shown that, depending on the data sources, household income poverty in South Africa either
     remained static or increased slightly between 1995 and 2000 or between 1996 and 2001. Research
     considering the changes in non-income welfare in the post-apartheid South Africa has found
     significant increases in the levels of non-income welfare, driven to a large extend by the increased
     delivery of basic services by government since 1994.

     Using factor analysis, we constructed a comprehensive household welfare index that includes public
     assets (government provided services), private assets (including education) and wage and grant
     income. In addition, a public asset index and a private asset index were constructed that allowed
     us to analyse welfare as captured by access to government provided services and privately owned
     assets respectively. When standard poverty measures were applied to our derived indices, we found
     that total household welfare increased between 1993 and 2005. We also found that total welfare
     increased at a faster pace between 1993 and 1999 than between 1999 and 2005. The evidence
     suggested that in the first period the increase was driven largely by increased government service
     delivery, while in the second period it was driven by the growth in private asset ownership.

     Funding, for this research, was contributed by the Conflict and Governance Facility, a project of
     National Treasury, which is funded by the European Union under the European Programme for
     Reconstruction and Development.

     The report was published as DPRU Working Paper 07/128: Welfare Shifts in the Post-Apartheid
     South Africa: A Comprehensive Measurement of Changes and can be accessed at: http://www.


 Consumer Price Inflation Across the Income Distribution
 in South Africa

The prices that households face are critical in translating nominal income into specific utility
or welfare levels and, therefore, price changes over time, given a specific income level, will
positively or negatively impact on welfare. Prices, therefore, are critical to our understanding of
poor households’ welfare. By monitoring the price changes experienced by some representative
household, consumer price indices provide an important measure of changing purchasing power
within a given economy. However, irrespective of how the ‘representative’ household is determined,
it is clear that real households may differ sometimes considerably in terms of expenditure patterns,
weakening the ability of the price index to proxy the experiences of all households.

While demographic and locational factors impact on the spending patterns of households, so
too does income. The representivity of the consumer price index, therefore, varies systematically
according to these variables. Group price indices offer one method of more accurately reflecting the
inflation experiences of specific types of households, such as poor households, elderly households
or households with children, for example. Another way of improving the representivity of a price
index is by removing, or at least moderating, the bias towards high expenditure households inherent
in the calculations of official price indices around the world, ensuring that households of different
income levels contribute more equally to the calculation of relative expenditure weights.

This study, funded by the United Nations Development Programme (UNDP), uses expenditure
data from the 2000 Income and Expenditure Survey and price indices from Statistics South Africa
to calculate inflation rates for expenditure deciles for the period 1998 to 2006. The results show
that the conventionally calculated, plutocratic weight structure does not reflect the ‘average’
household as is commonly believed. Being related to the level of inequality within a given society,
the plutocratic weights calculated above most closely reflect the spending patterns of households
in the 95th percentile of the expenditure distribution. As a result, price indices and inflation rates
calculated on the basis of these weights can not accurately reflect the rates of inflation experienced
by what would be viewed as the ‘average’ household.

This study concurs with the majority of the literature surveyed in that neither rich nor poor
households are found to have experienced rates of inflation consistently higher or lower than
average, with the plutocratic gap shifting from positive values to negative values (or vice versa)
seven times between January 1998 and December 2006. The inflation rate calculated using
conventional plutocratic weights does not differ substantially over longer periods of time from
the democratically weighted inflation rate. However, over shorter time periods, the difference
between the two inflation rates can be significant, indicating a marked divergence in the rates of
inflation experienced by households at different points of the income distribution. The official CPI
in South Africa is, like those in other countries, unable to accurately reflect the rates of inflation
experienced by households of different income levels at all points in time, a fact that should be
considered carefully in analyses of household incomes over time, and particularly in the case of
poor households.

This study was published as DPRU Working Paper 07/129: Consumer Price Inflation Across the
Income Distribution in South Africa and can be accessed at:

This study was funded by the UNDP


     Energy Project: Developing Long Term Mitigation
     Scenarios (LTMS) for South Africa

     The DPRU was commissioned by the Energy Research Centre at UCT to conduct the economic
     impact analysis component of a project about the development of climate change mitigation
     scenarios for South Africa. Climate change mitigation scenarios explore ways and means in
     which greenhouse gas emission levels can be reduced in order to combat global warming. The
     economic analysis was specifically concerned with the impact of mitigation actions on growth,
     job creation and household income levels. Scenarios explored included: (1) the adoption of
     more energy efficient production processes in mining, manufacturing, commercial and transport
     sectors; (2) shifts away from carbon-based energy supply sectors (for example, coal-to-liquids
     in the petroleum sector, or coal-fired electricity plants in the electricity sector) towards cleaner
     alternative (for example, biofuels or gas-to-liquids in the petroleum sector, or nuclear and
     renewable energy in the electricity sector); and (3) the use of economic instruments, in particular
     a tax on CO2 emissions, to act as an incentive for producers to reduce greenhouse gas emissions.

     A Computable General Equilibrium (CGE) model was used to explore the economy-wide implications
     of these mitigation actions. This model was calibrated against a Social Accounting Matrix (SAM)
     for South Africa (with base year 2000) which was adjusted for this particular project by adding more
     detail to the energy sectors captured in the SAM. The model simulations conducted were informed
     by outputs from the energy modeling component of the project. The energy model only models
     implications for the energy sector. By complementing the energy model results with CGE model
     results it is possible to explore the impact of energy mitigation scenarios on the rest of the economy,
     including other (non-energy) economic sectors, households, government and the rest of the world.

     The results show that energy efficiency gains, just like any increase in production efficiency, will
     have important positive spin-off effects in the economy. Ultimately increased energy efficiency
     implies a reduction in energy costs of suppliers, thus allowing for more competitive pricing.
     This benefits consumers and boosts exports. From both a mitigation and an economic point of
     view increased energy efficiency is found to be a non-negotiable option for South Africa in its
     quest to reduce greenhouse gas emissions. As far as structural shifts in energy supply are concerned
     the CGE results suggest that these have mostly negative welfare consequences for the economy
     in the long run, although they are important from a mitigation point of view. Structural shifts
     require large-scale investments in costly infrastructure, while non-carbon-based processes
     themselves are also more costly. While short-term gains may be realized during the production
     phase of such capacity expansion projects, the long run effects are likely to be overshadowed by
     higher electricity prices and a decline in consumer welfare levels. Finally, results show that the
     imposition of CO2 taxes (or carbon taxes) may have large negative welfare effects for consumers
     of emissions-intensive commodities, depending on the level of the tax. Prices of commodities
     such as electricity and liquid fuels are particularly sensitive to carbon taxes. However, the
     imposition of a tax implies increased government revenue, which means government needs to
     decide how such funds are to be allocated in the economy. Various spending alternatives are
     considered in the CGE model. While the subsidisation of non-carbon-based energy seems the
     logical option, the results suggest the subsidisation of commodities consumed intensively by
     poor households (food, transportation and so on) will have the a greater impact on welfare levels.

     The LTMS project was funded by the Department of Environmental Affairs and Tourism (DEAT)
     and managed by the Energy Research Centre (ERC) at the University of Cape Town.


Social Security Provisioning in South Africa

This UNDP-funded project, broadly on the theme of social security provisioning in South Africa, was
conducted in two parts. The first part, titled ‘The Impact of Growth and Redistribution on Poverty and
Inequality in South Africa’, looks broadly at poverty and inequality in the distribution of income, and
particularly at the roles of economic growth, labour markets and social security provisioning in affecting
poverty and inequality outcomes in the country. The second part of this study is titled ‘Expanding the
Social Security Net in South Africa: Opportunities, Challenges and Constraints’, and considers options for
expanding South Africa’s already large social security expenditure program.

The first study evaluates the experience of the South African economy with respect to growth, poverty
and inequality trends since the advent of democracy in 1994, and analyses the role of social security
within this context. Social welfare grants are an important source of income for a large proportion of
the South African population. Government expenditure on social security has increased rapidly between
2000 and 2006, thus further increasing poor households’ reliance on welfare grants. While this increased
dependence on welfare has been criticised on the one hand, the expansion of welfare has certainly been
important in the fight against poverty. Also central to the post-apartheid government’s social policies
is job creation and a narrowing of the gap between the so-called first and second economies. Despite
this strong focus of uplifting the poor through social security provisioning and economic strategies,
it remains unclear as to what extent government has been successful. Some controversy exists around
whether relatively fewer South Africans are poor ten years after the democratic government came into
power. There seems to be greater consensus among analysts that inequality has increased. This study
attempts to shed some light on these issues, drawing on recent South African literature and data.

Given the apparent effectiveness of welfare transfers in reaching the poor, many are calling for further
expansions in social security provisioning. The second paper considers the options and constraints. In
terms of the design of expanded social security programmes, some have argued the need to link grants
to certain conditions, such as school attendance or regular visits to health clinics (conditional grants).
However, as we argue in this report, various constraints need to be considered. Whereas in the past much
of the increased expenditure on social security provisioning could be financed out of government revenue
overruns, it is likely that further increases will only be possible through a reallocation of government
expenditure. Already there is evidence of a substitution taking place within the social budget: expenditure
on education and health seems to have declined in favour of increased welfare transfer expenditure. This,
we argue, is untenable and may harm the already weak education and health services in South Africa.
Conditional grants linked to school attendance and visits to health clinics will only put further pressure
on health and education services, as well as the agency responsible for disbursing and monitoring welfare
payments in the country. We argue, therefore, that budgetary and service delivery constraints, at the
present moment, present a strong argument against any expansion of the social welfare system in the
immediate future.

This study was generously financed by the UNDP Regional Bureau for Africa. It is part of a larger
research programme on cash transfers in both Latin America and Sub-Saharan Africa, supported by the
Department of International Development, GTZ and UNDP.

Two papers eminated from the research:
Pauw, K. & Mncube, L. 2007. The Impact of Growth and Redistribution on Poverty and Inequality in
South Africa. DPRU Working Paper 07/126 ( The paper was
first published by International Poverty Centre Country Study, No. 7, July 2007 (http://www.undp-

Pauw, K. & Mncube, L. 2007. Expanding the Social Security Net in South Africa: Opportunities,
Challenges and Constraints. DPRU Working Paper 07/127 ( The paper
was first published by the International Poverty Centre Country Study, No. 8, July 2007 (www.undp-


     Health Workforce and Labour Market Analysis

     Commissioned by the Department of Health, this research will investigate a number of issues
     related to the health workforce, particularly regarding monitoring and planning. Issues such
     as employment status, milieu of work as well as qualification levels will be inevestiged, while
     emerging trends in Human Resources policy planning and research nationally and globally will
     be documented. One of the main objectives of the research is to develop a profile of the health
     workforce active in both the public and private sectors. In order to achieve this, all available
     relevant datasets will be analysed in order to ascertain what data on the health workforce is
     available to and most appropriate for the needs of the Department of Health. Data sources will
     include national household surveys, such as the Labour Force Survey, Census 2001, and various
     official data sources.

     Profiling the Youth in South Africa

     This study was commissioned by the Department of Social Development (DSD). The objective of
     the study was to provide a detailed review of the South African literature on the youth population,
     including issues such as youth unemployment, combined with a descriptive analysis of various
     national datasets including the Labour Force Surveys conducted by Statistics South Africa. The
     broad aim of the study was to contextualise youth within the broader South African population,
     and to provide quantitative information on their socio-economic situation, as well as their position
     in the South African labour market. The findings of the study highlighted how youth in non-
     metropolitan areas continue to be at a disadvantage in terms of education, labour market outcomes
     and their socio-economic situation. Moreover, there is a strong gender-based difference in various
     indicators, which is particularly evident when examining labour market outcomes for youth. The
     results suggest that the South African economy has, since 1995, been unable to generate sufficient
     employment opportunities to deal with the increase in labour force participation, particularly
     amongst youth. Consequently, unemployment rates continue to remain high. The study did
     show, however, that the educational profile of the youth labour force has improved significantly
     since 1995. There has been a significant decrease in the numbers of youth with lower levels of
     education, and a significant increase in the numbers of youth with higher levels of education,
     specifically complete GET and a complete Matric. However, improved educational attainment
     has not necessarily translated into improved labour market performance, with many employers
     still reluctant to employ young people. Unemployment, therefore, remains a key issue, particularly
     amongst female youth and in non-metropolitan areas, with many young people experiencing long
     periods of unemployment.

     Estimating Poverty Lines for South Africa

     Widespread poverty remains one of the most pressing issues facing South Africa, with a variety
     of policies across various government departments aiming, whether directly or indirectly, to
     address the situation and lower poverty. Monitoring the success of such efforts depends crucially
     on accurate measurements of poverty, which in turn rely on a considered and relevant definition
     of poverty. Commissioned by the Department of Social Development, this study seeks to define
     various measures of poverty, boh absolute and relative money-metric measures, using the 2005
15   Income and Expenditure Survey.

In 2005, the DPRU was awarded a two year grant from the Department of International Develop-
ment (DFID) to implement its national initiative, the Employment Promotion Programme (EPP).
The EPP is aimed at providing an enabling environment in South Africa for the expansion in ag-
gregate employment and in part to assist in reducing the stated government objective of halving
unemployment by 2009. Following the successful implementation of the first phase of the project
(which ended in September 2007), the grant was extended by two years. Policy and research work
in Phase I had a strong focus on the design of programmatic solutions – rather than just issue iden-
tification. A key focus for Phase II will be the implementation of these solutions.

In 2007, EPP research focused on three broad areas, namely labour market regulation and institu-
tions, skills development and industrial policy.

The labour regulation research was specifically designed to provide the analytical bedrock for the
policy interventions aimed at improving the efficiency of labour market institutions, such as the
CCMA and Bargaining Councils. Phase II will thus provide the support required to translate the
research from Phase I into change processes within the CCMA and Bargaining Councils.

The skills development research included an in-depth assessment of the Sector Education and
Training Authorities (SETAs), with wide-ranging proposals for improving their effectiveness. This
SETA review has been instrumental in influencing the debate around the future of SETAs. Phase II
will continue to support further research into implementing the proposals contained in the SETA
review and other complementary SETA-based research.

The EPP continued to play a key role in the Joint Initiative for Skills Acquisition (JIPSA), by com-
missioning research inputs into setting the agenda for the JIPSA process, which forms part of the
Accelerated and Shared Growth Initiative (ASGISA). Specific areas of support included supporting
business plans for increasing the supply of engineers and artisans to the labour market. In the sec-
ond phase of EPP, the support for JIPSA is set to expand appreciably.

For more information visit the EPP Web Site at:
Funding for this project was made possible by: DFID


     The DPRU team comprising Haroon Bhorat, Morné Oosthuizen, Carlene van der Westhuizen,
     Sumaya Goga, Liberty Mncube and Kalie Pauw had been involved with teaching and training
     throughout 2007. This included teaching third year Advanced Labour Economics and the Masters
     Course in Labour Economics in the School of Economics at the University of Cape Town.

     Their participation included the presentation of papers at the seminars hosted by the School of
     Economics and The Southern Africa Labour and Development Research Unit (SALDRU) . Further
     enrichment occurred with the attendance of conferences and workshops during the year.

     The DPRU co-hosted a training workshop with Cornell to National Treasury officials. The
     workshop dealt with issues of Poverty Reduction and Social Security.


Associates of the DPRU are individuals who have either had some involvement with projects under the
auspices of the DPRU or contributed to providing research articles that have been published by the DPRU.

AFReC                       –        The Applied Fiscal Research Centre
Sean Archer                 –        School of Economics, University of Cape Town
Paul Benjamin               –        Cheadle Thompson & Haysom Inc.
Oupa Bodibe                 –        National Labour and Economic Development Institute (NALEDI),
Daniela Casale              –        Division of Economics, University of KwaZulu-Natal
Halton Cheadle              –        Faculty of Law, University of Cape Town
Paul Cichello               –        School of development Studies, Loyola College
Reza Daniels                –        School of Economics, University of Cape Town
Rudi Dicks                  –        Congress of South African Trade Unions (COSATU)
Peter Glick                 –        Division of Nutritional Sciences, Cornell University
Shane Godfrey               –        Faculty of Law, University of Cape Town
Renee Grawitzky             –        Independent Consultant
Carola Gruen                –        Institut für Arbeitsmarkt- und Berufsforschung, Germany
Stephen Hanival             –        Trade and Industrial Policy Strategies (TIPS)
Tom Hertz                   –        Department of Economics, American University
Alan Hirsch                 –        Office of the Presidency
James Hodge                 –        Genesis Analytics
Ravi Kanbur                 –        Department of Applied Economics & Management and
                                     Department of Economics, Cornell University
Ashraf Karriem              –        Office of the Presidency
Neva Makgetla               –        Office of the Presidency
Johann Maree                –        Department of Sociology, University of Cape Town
Scott McDonald              –        Business School, Oxford Brookes University, United Kingdom
Cecil Mlatsheni             –        School of Economics, University of Cape Town
Liberty Mncube              –        Competition Commission
Colette Muller              –        Division of Economics, University of KwaZulu-Natal
Kate Philip                 –        ComMark Trust
Farah Pirouz                –        School of Economics & Business Sciences, University of the Witwatersrand
Dori Posel                  –        Division of Economics, University of KwaZulu-Natal
Neil Rankin                 –        School of Economics & Business Sciences, University of the Witwatersrand
Anton Roskam                –        Independent Consultant
Jan Theron                  –        Labour and Enterprise Policy Research Group, University of Cape Town
Imraan Valodia              –        School of Development Studies, University of KwaZulu-Natal
Servaas van der Berg        –        Department of Economics, Stellenbosch University
Andre van Niekerk           –        Perrot, Van Niekerk & Woodhouse Inc.
Vic van Vuuren              –        Business Unity South Africa (BUSA)
Albert van Zyl              –        The International Budget Project
Margareet Visser            –        Labour and Enterprise Policy Research Group, University of Cape Town
Stephen Younger             –        Division of Nutritional Sciences, Cornell University


     National Network                       African Network

     Department of Labour                   African and Economic Research
                                            Consortium (AERC)
     The Presidency
                                            Secretariat for Institutional Support for
     Department of Public Enterprises       Economic Research in Africa (Sisera)

     Department of Trade & Industry

     National Treasury                      International Network

     Western Cape Department of             International Labour Organisation
     Economic Affairs
                                            Cornell University
     Western Cape Provincial Treasury
                                            International Development
     Competition Commission                 Research Centre

     Trade & Industrial Policy Strategies   World Bank
                                            The United States Agency for
     South African Reserve Bank             International Development

     Provincial Government of the           United Nations Development
     Western Cape                           Programme

     Stellenbosch University

     University of the Witwatersrand

     University of Kwa-Zulu Natal

     Statistics South Africa


The Development Policy Research Unit (DPRU) is part of the School of Economics
at the University of Cape Town. We conduct research in the fields of labour markets,
poverty and inequality.

Our Mission is to:

      •        Undertake high quality policy-relevant research

      •        Maintain and develop effective networks with government, civil society and
               the research community in Southern Africa

      •        Engage in training and teaching activities

      •        Participate directly in the process of formulating, implementing and
               evaluating policy

The DPRU specialises in socio-economic research with a focus on labour markets, poverty
and inequality. Through the application of economic and statistical techniques, our aim is to
produce academically rigorous policy analysis. The three core objectives of the unit are:

      •        Fostering high quality, policy relevant research within
               the DPRU

      •        Training a new generation of research economists within
               the Unit

      •        Disseminating knowledge to decision makers in government, the private
               sector and civil society

In recent years the DPRU has become one of South Africa’s premier institutes to research the
areas of poverty, inequality and labour markets. On these issues, the DPRU has also become
a main source of information for policy makers and decision makers within government, the
private sector and civil society.

     D P R U S T A F F 2007

                         Haroon Bhorat

                                                                              Kalie Pauw
                                                                              Senior Researcher

                         Morné Oosthuizen
                         Deputy Director

                                                                              Liberty Mncube

                         Carlene van der Westhuizen
                         Senior Researcher

                                                                              Sumayya Goga

     Wendy Lessing                    Lisl George                 Bernadette Ontong
     Programme Manager                Administrattive Assistant   Publications Co-ordinator

              PHYSICAL ADDRESS:

       The Development Policy Research Unit
             University of Cape Town
                      4th Floor
        Robert Leslie Social Science Building

                                                  Images: 1.; 2. Own photographs; 3.
                  Upper Campus
                     Cape Town
                    South Africa

               POSTAL ADDRESS:

       The Development Policy Research Unit
             University of Cape Town
                   Private Bag

           TEL: +27 21 650-5705
           FAX: +27 21 650-5711
                                                         Design and Layout: Bernadette Ontong (DPRU, UCT)


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