This week I have decided to tackle the burning issue of unemployment and job creation which has become topical in our country. The high levels of unemployment, estimated at 90% by independent economists while official statistics suggest a 10% level of unemployment are worrying many households and policy makers.
Daniel Ngwira,Chartered accountant
The lofty levels of unemployment, which Zimstat have failed to capture, have caused the Great Trek similar to the Dutch in the period 1835-1846. While the Dutch were escaping from British rule in a foreign land, Zimbabweans are running away from their own land governed by the people they chose. The bloodshed in this instance, unlike during the Mfecane and the Great Trek, is loss of economic livelihood.
The accuracy of employment figures is contentious, not only in Zimbabwe, but even in the most developed country on earth, the United States. Economists and especially opposition parties tend to believe the employment figures are made up by a sitting government in order to remain in power or to win the next election. However, it is important to note that the margin of error, which cause discomfort among the parties, is rarely as high as the situation pertains in Zimbabwe.
Traditional literature in economics tries to justify why citizens must be economically literate. Of the major reasons stated in most traditional books of economics, one of them is for one to be an informed voter. Knowledge of economics enables one to critic policy pronouncements when they are presented as manifestos for elections. It also helps in deciding which party or which candidate can better or best represent the aspirations of a people.
In addition, reasonable expectations are created of the politicians when they get into office. Further, it helps one decipher whether the manifesto is carrying statements of wish or strategic matters which can be supported by available resources, capabilities and stakeholders. A statement of wish may only show the electorate how much the politician loves them; however, it needs to be managed well to avoid creating unrealistic expectations. For example, as US President Barack Obama campaigned to be president of the free world, he promised to close Guantanamo Bay. It is barely six months to the end of his presidency. This remains a broken promise. Resources, procedures, policies and stakeholders are among the key issues in implementing an election manifesto or promise.
One of the most litigious issues regarding employment levels is the computation and methodology. Authorities can alter the level of employment figures by re-defining what unemployment is. Many of you may be aware that the Nigerian economy became the biggest in Africa surpassing South Africa through rebasing, which in a way is redefinition. When a person is not working, they are deemed unemployed provided they are actively seeking work. So someone who is not working and they have given up looking for work will not be in the population set usable for the purposes of computing unemployment.
This has also become topical in the US as the Republican presumptive presidential nominee Donald Trump fights to replace Obama who is credited among the top presidential performers regarding job creation. He took office at the onset of a debilitating recession which had been caused by the subprime mortgages crisis. Unemployment peaked at 10%. Today, the US has, under his watch, achieved full employment at 5%. Critics argue that Obama has been aided by the number of people who gave up looking for work and as such they are no longer being counted as unemployed.
Others are arguing that the quality of jobs created does not advance the well being of the generality of Americans, including for the reason that they are low-paying jobs and they are of a less permanent nature.
Unemployment is categorised into frictional, structural and cyclical. Frictional unemployment is temporary in nature as it results from workers moving to seek other opportunities or getting fired. This type of unemployment is always present as businesses expand or contract. Consequently, it is a result of the time lag in matching employees’ skills with employers’ demands for certain skills.
On the other hand, structural unemployment is a consequence of long run changes in the economy. These long run changes are described as structural and they result in some jobs being eliminated while others are being created. To put things into perspective, consider the migration of economies from postal services to e-mail, messaging and scanning services. This created structural unemployment. Work will be available but the unemployed workers would not be having the necessary skills to perform the work. Inevitably, retraining is needed.
Lastly, unemployment which is caused by changes in the general level of economic activity is called cyclical. It is high when the economy is operating at less than full capacity. This is the most worrisome to governments and households. Zimbabweans can quickly identify themselves with this type of unemployment.
Of course, it does not mean that the three types of unemployment are mutually exclusive. Identifying the types of unemployment helps policy-makers come up with appropriate response measures, provided they have the capabilities and the means. At the moment, Zimbabwe is lacking financial resources to jump-start the economy in order to create jobs.
In the US, unemployment rate averaged 5,82% from 1948 to 2016 while it rose from 4,7% in May to 4,9% in June 2016. The lowest rate recorded to date was in 1982 (2,5%) while the highest was in 1953 at 10,8%. The cause for the escalation in June, which was out of the market’s imagination, was that more people entered the labour market resulting in the unemployment digits rising 347 000 to settle the overall unemployment level at 7,8 million, which translates to about 60% of Zimbabwe’s population.
In October 2009, unemployment in the US peaked 10% during Obama’s first year as president. This is explained by the heat of the global financial crisis. For 17 months during his presidency, the US was losing jobs, peaking at 823 000. However, a string of private sector job creation helped the jobs market recover, with the peak being 522 000 in May 2010. Within seven years, the US, under Obama’s watch, managed to create 14 million jobs while the economy has effectively added 9,3 million jobs. The US population is 324 181 858 as of July 9 2016, with 82,5% of the population being urban.
Average unemployment in Zimbabwe from 1982 to 2014 was reported at 7,76% and was said to have reached an all-time high of 11,3% in 2014 while being lowest in 2004 at 4,2%. The unemployment figures in Zimbabwe look fantastic because of the broader definition of employment which is applied. Subsistence farming and the informal sector are considered forms of employment. As so many people have given up the job search, unemployment is ridiculously low.
Official reliable data on employment is unavailable despite there being a national statistics office funded by the taxpayer and staffers there driving Prados.
The 14 million private sector jobs created by the US equate to 4% of the population while two million jobs promised by the government would have equated to 14% of the population. This would have been a super-performance by Zimbabwe over the US, which has created more jobs than every other advanced economy (excluding Hong Kong and Taiwan combined since 2009). It would have meant that Zimbabwe would be generating 33 000 jobs every month for 60 months. To date, the economy would have created one million jobs. Hong Kong and Taiwan have created over one million jobs over a seven-year period. So in 30 months, the US created five million jobs while Zimbabwe would have created one million jobs. This entails that Zimbabwe would have generated 25% of the jobs created by the US during the comparable period.
While the US pumped in trillions into the economy to drive its expansionary monetary policy, reducing rates to near 0%, Zimbabwe pumped in air, with rates hovering above 10% (at one point rates were 10% per month) and no capacity to handle an expansionary monetary policy. Instead, using coercion to drive the economy.
This picture was apparent during the past election period of 2013. The central bank was undercapitalised with a huge debt overhang of US$1,35 billion sitting on its balance sheet, nil foreign exchange reserves and no capacity to carry out open market operations. In addition, the country has suffered the lack of a lender-of-last-resort as well as an adverse sovereign credit rating.
So what motivated people to believe that government would be able to create two million jobs? Is it a justified expectation? The government has limited tools to influence positive economic activity given its structure and circumstances.
In the end, looking at the current situation, it is not possible for government to create any meaningful jobs with the current resources. The economy needs a huge jump-start in funding and a big paradigm shift in managing it. Even if we were to go back to 2013, it was clear that two million jobs would be an uphill task or a fantasy for a country which does not have its own currency and with no liquid reserves available to draw down in order to fund an expansionary policy. Without exonerating the government, I walk away asking the question: “Is it justified to expect this government or to have expected it to generate two million jobs?”
Ngwira is a chartered accountant, corporate treasurer, former bank treasurer and ex-lecturer. — email@example.com, +267 73 113 161.