The socioeconomic costs of structural unemployment

Sindile Vabaza is an aspiring economist and an avid writer who writes for the Free Market Foundation. 

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This article was first published on on
15  March 2022

The socioeconomic costs of structural unemployment

According to the Global Peace Index for 2020 by the Institute of Economics and Peace (IEP), violence costs South Africa about 13% of its gross domestic product (GDP) per year. South Africa ranks as the 26th most costly in the world, totalling $97.4 billion, or ,971 per capita (in PPP terms). The two factors that stand out are levels of violent crime and homicide, which is what pulls South Africa so far down the list of safe places.
areas within the country such as parts of the Cape Flats. Nyanga and Umlazi have murder rates higher than some war zones, the report found. According to the index, South Africa ranks within the bottom 20 in the world when it comes to societal safety and security – beating out countries such as Syria, Iraq and Afghanistan.
South Africa has historically scored poorly in a number of areas including:
  • Perception of high levels of criminality;
  • Easy access to weapons;
  • Relatively high levels of political terror
  • High levels of violent demonstrations.
In a report titled Too Costly to Ignore: The economic impact of gender based violence in South Africa, KPMG estimates that domestic violence costs the South African economy between R28.4 billion and R42.4 billion annually, or between 0.9% and 1.3% of GDP. The report admits this is a conservative figure owing to the underreporting of domestic violence and some key data gaps that prevent a more robust analysis and therefore the real cost is likely significantly higher.
What is clear is that the high rates of violence in South Africa have both dire social and economic costs through lost productivity and foregone income for victims of violence. Moreover, the reduction in output is even larger because of the economic multiplier effect, which means that a Rand loss represents more than ‘just’ that Rand; it represents the lost savings and spending that are passed on to others to save and spend many times over as money circulates through the economy. When violence is reduced, resources can be reallocated to more productive uses that result in economic growth - the multiplier effect serves to augment that growth.
There are also cost implications for the public purse as victims will use more police services, healthcare services, and the criminal justice system. The more violence there is, the more resources the government is forced to allocate towards these services in order to serve victims.
Put another way, R28.4 billion (the lower cost estimate of domestic violence) could pay all child support grants for the next eight years, or fund over 200 000 primary school teacher salaries for a year, or pay 900 000 engineering students fees.
Unemployment and domestic violence
Research by an international team including Professor Sonia Bhalotra of Warwick Economics and the CAGE Research Center of the University of Warwick found a strong link between job loss and domestic violence. Men who lose their jobs are more likely to inflict domestic violence, while women who lose their jobs are more likely to become victims. The increases are upwards of 30%.

The study titled Domestic Violence: the potential role of job loss and unemployment is based on large scale data from Brazil that analyses court registers from Brazil that contain every domestic violence case during 2009–2018. In this period there were 2 million domestic violence cases, representing 11% of all criminal justice cases, which were then linked to employment registers, with details of around 100 million workers, 60 million employment spells and 10 million layoffs per year.

The study also included measures of domestic violence that do not rely on victims reporting the event to the police. These are: indicators for women using domestic violence public shelters, and notifications of domestic violence by health providers that are mandated by the federal government.
During the height of the COVID 19 pandemic and lockdowns - as many people lost their jobs and businesses and many were forced to stay at home - there were significant increases in domestic violence all over the world.
Long term (structural) unemployment and violent crime
In a study titled, Long term unemployment and violent crimes – using post-2000 data to reinvestigate the relationship between unemployment and crime, authors Daniel Almen and Martin Nordin of Lund University conclude that long-term unemployment exhibits a strong association with violent crimes in addition to property crimes.
Young men - who are unable to secure employment and become idle and unemployed over the long term - struggle to attract romantic partners and therefore to build families and invest in community and societal stability. It is why polygamous societies, often born of gross inequality, have always been the most violent and war-like societies. Young men need a path towards stability and that often begins with securing decent employment.
For South Africa to begin to address the country’s many social problems and stymied economic growth, policy makers should prioritize policies that create job intensive economic growth, especially for low-skilled men who have been unemployed for a long time. Labour laws need to be reformed, including doing away with minimum wage legislation and ensuring employers have labour market flexibility. There also needs to be an end to collective bargaining agreements, a tool that allows employers and union representatives to set the conditions of employment for millions of workers in a particular sector. None of the parties involved ever consider the interests of the unemployed.
These collective bargaining agreements are anathema to small businesses who struggle to comply with them and so have their growth and ability to hire stunted.

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