So, here we are, clawing our way out of a deadly pandemic into the post-coronalyptic wasteland of an economy whose most defining characteristic is a distinct lack of jobs.
As we saw in Part 1 of this explainer series, things are pretty dire out there on the employment front, and there’s no quick-fix solution for this crisis.
This won’t be the last jobs crisis the world will ever see, but it also isn’t the first. Other countries have been here before, and some of them have even come out of it okay.
So in Part 2 of the series, we’re taking a look at two of the countries that picked themselves up and got people working again: Greece and Spain.
READ PART 1: How Covid-19 is making joblessness worse
Check out our video explainer here:
First, some more bad news. South Africa’s unemployment rate was sitting at 30.1% at the end of the first quarter of this year.
That means 30.1% of South Africa’s labour force of 23-million people did not have a job – before Covid-19 hit.
The next unemployment figures are going to show the effect of the pandemic, and everyone’s bracing for things to look a whole lot worse. According to a study conducted by about 30 researchers from South African universities, at least three million people lost their jobs between February and April alone.
We’ll probably get our first look at the next set of official figures by the end of August, a spokesperson for Statistics South Africa told explain.co.za, although a date for the release hasn’t been finalised. And thank goodness the booze ban has been dropped, because quite a few of us are going to need a stiff drink afterwards.
*cue record scratch*
But hang on a second, let’s rewind about eight years, give or take, and shift our attention northwards, past the equator and into the wine-dark seas of the Mediterranean, where we find the two main characters in today’s story: Spain and Greece.
They had unemployment rates of around 24% – not too dissimilar to South Africa’s unemployment rate at the time. In 2008 Greece had taken the brunt of the global sovereign debt crisis that caused the country’s economy to crash and burn, leaving a trail of joblessness and financial devastation behind it. Spain was similarly affected, but its recession was aggravated by a deeper housing crisis and unsustainable GDP growth (you’d think rampant growth would be good, but try telling that to an overinflated balloon). Cue crash and burning etc etc.
It’s okay to describe their situation as pretty damn dire. We’re well-acquainted with direness. We know it when we see it. And in 2012, we were all in the same big boat of direness, at least when it came to unemployment.
Yet fast forward to the beginning of this year, and suddenly the picture changes.
Both Greece and Spain have made tremendous strides in reducing their jobless rate, while South Africa’s has continued to rise. 🙈
Here’s what Greece and Spain managed to achieve in that time:
1. They brought state spending under control
2. State-owned enterprises were restructured
3. Their public wage bills were slashed
4. Labour policies were reformed and relaxed, to boost hiring
5. They grew their economies
Let’s take a closer look.
In 2013, Greece had an unemployment rate of around 27.4%. Why? It’s complicated.
But let’s just say that corruption and bad financial management meant that Greece’s national debt was on the rise from the early 2000s. And by 2008, when the global financial crisis tanked the world economy, the cracks deepened.
Because Greece’s debt was so huge, it couldn’t pay its biggest lenders from the European Union. The Europeans were prepared to help Greece, but only if the country adopted so-called austerity measures. This meant that Greece had to drastically reduce spending.
Sounds good, right? Well hang on a minute. Bailouts like that can be really harmful, read all about it here.
Nevertheless, Greece accepted a number of these bailouts, and things slowly stabilised.
But Greece also began to change its own general attitude, making some structural adjustments and controlling spending in other ways. This, to some extent, helped increase economic growth and productivity. In its latest report on Greece, ratings agency Moody’s said the country improved its overall financial wellbeing in several ways, such as by:
- Reforming the tax system
- Changing pension and healthcare spending
- Restructuring public enterprises
- Reining in the public wage bill.
Thanks to the bailouts, (and some controversial austerity), Greece was indeed able to stabilise its debt.
It’s not out of the woods yet. Greece’s unemployment rate is still among the highest in Europe, but if it was able to lower joblessness by nearly 10% in just SEVEN years, then it must be doing something right.
The home of siestas, paella and uhm.. hot soccer players… 👀 (Now now, Let’s try to keep it tidy — Ed). In terms of high unemployment and economic woes, it’s not far behind Greece. In 2013, Spain’s unemployment was at its peak of 26.94%.
But Spain didn’t always have issues. At one point, Spain’s debt was lower than Germany’s and its tax revenue was more than its total spending. But over the years, (yes, it’s complicated) bad financial management and the housing crisis meant that when the global recession hit, in 2008, Spain went into a terrible recession.
By 2011, the country was spending way more than it was producing. Before 2008, Spain was also able to maintain low unemployment through the use of temporary employment contracts.
According to the New York Times, the use of temporary contracts had most likely boosted hiring by Spanish firms.
But it had a flip side: so many temporary contracts meant that very few people were actually formally employed, and it’s estimated that around a quarter of all Spanish jobs are temporary at the moment.
Then, in 2012, in an effort to cut costs, the Spanish government raised taxes while taking money away from local government, meaning that service delivery got worse and the people got poorer.
But then Spain made one crucial change (and, yes, it’s still complicated) – they started to spend responsibly. In June 2019, Moody’s wrote in its report that Spain’s economy improved through a “broad-based and sustained recovery and increased competitiveness”.
Translation: Spain made a lot of changes and slowly became more attractive to trade with.
The ratings agency added that Spain is now enjoying a “strong and job-rich recovery”.
Not out of the woods
But, like Greece, Spain is also not completely in the clear: there are still many issues it needs to remedy, like fixing its unstable labour market. It also still has way too much debt.
Both countries also still have very high unemployment levels by European standards.
And with Covid-19 in the picture, like many countries around the world, experts predict that Spain especially is bound to suffer severe fallout. Sure enough, recent figures show the country’s unemployment just rose for the first time in a decade.
Still, Greece and Spain did reduce unemployment by MORE than 10% in SEVEN years, and even if austerity goes against the grain for many of us, it seems it can help keep an economy from drowning long enough to start recovering properly..
What can we learn?
Cutting the public sector wage bill was the BIGGEST bone of contention at the start of the year, when Finance Minister Tito Mboweni delivered his budget. Spending on government employees consumes huge amounts of South Africa’s national budget, according specialist labour lawyer Andrew Levy. Cuts should be applied with a scalpel, however, not a chainsaw.
We also need to fix our struggling state-owned enterprises. (We’re looking at you, Eskom and South African Airways.) Levy says a lot of money goes into these companies, but they are not engaged in any kind of projects that will actually bring growth. He also says that we need sustained economic growth of at least 5% a year to see unemployment fall, which is possible, since we have done it before before (when Thabo Mbeki was president).
Professor Derek Yu from the University of the Western Cape, meanwhile, believes we also need to reform our education system, and relax our labour laws. Levy however warns that adding more temporary work alone is not going to save us.
But it could help keep us going just long enough to let us save ourselves.
There *are* ways to reduce our unemployment rate. We just need to take a good look at what’s worked out there in the world – and learn all we can from what hasn’t.
We just need the political will to make it happen, but that’s a story for another time.
This story was supported by the Pulitzer Center and Code for Africa.