When President Cyril Ramaphosa promised in the depths of the Covid-19 pandemic that the state would spend R200bn on helping to save lives and livelihoods, much of this was smoke and mirrors and the money that eventually flowed wasn’t a fraction of that total.
But there were two big success stories regarding helping citizens survive the devastating economic effects of the pandemic and the accompanying lockdowns. One was the Temporary Employer-Employee Relief Scheme. It was funded from the Unemployment Insurance Scheme, which paid out R64bn in 2020 to subsidise the wages of almost 6-million workers. It was a labour market measure that ensured cash flow for companies that had to shut down, and income for employees who were laid off or took pay cuts. It is estimated to have saved almost 2-million jobs.
The other success was a poverty alleviation programme for unemployed, able-bodied adults of working age who weren’t entitled to any other grants from the state. This was the R350 Covid-19 social relief of distress (SRD) grant. As it turned out, the SRD didn’t end with Covid-19 but was extended and extended again. It is now due to run until end-March 2024 at a cost of R36bn for almost 8-million recipients. Add that to the 19-million recipients of old age, child support and other grants, and almost half of SA’s population now receive one or other form of grant from the state — far more people than have jobs.
Little evidence
With the pressure on for a basic income grant, keeping the SRD in place is one option for government. And in justifying its continued existence, some economists have argued that the small income it provides has helped people to search for and find jobs as well as to start or sustain small businesses that might create jobs.
But University of Cape Town professor Haroon Bhorat and his team at the Development Policy Research Unit have found little evidence that the SRD has any meaningful impact on employment. Initially it increased the probability of being employed slightly, but evidence now is employment outcomes for SRD grant recipients are little different from nonrecipients. It is definitely not a labour market tool, Bhorat told an economics seminar in Pretoria earlier this week.
Arguably the SRD was never intended as such — but in giving handouts to the unemployed, it seems almost to give up on the chances of using taxpayers money to do something about job creation instead.
Crucially, Bhorat zeroed in this week on the question of what we are trying to solve for — making it clear that if policymakers are genuinely trying to improve employment outcomes, there are much more effective ways to do it.
He calls for policies that stimulate the supply side of the economy, specifically those that support businesses, from tiny informal operators to larger companies. Instead of spending more money, government should improve infrastructure and deregulate, to make it easier for informal traders to survive, thrive, and create jobs.
In many developing economies the informal sector provides the jobs the formal sector can’t. More jobs would mean less need to spend public money on grants.
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