Surviving Unemployment Without State Support: Unemployment and Household Formation in South Africa

33 Pages Posted: 28 Mar 2001

See all articles by Stephan Klasen

Stephan Klasen

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Ingrid Woolard

University of Port Elizabeth - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 2001

Abstract

High unemployment in many OECD countries is often attributed, at least in part, to the generosity and long duration of unemployment compensation. It is therefore instructive to examine a country where high unemployment exists despite the near complete absence of an unemployment insurance system. In South Africa unemployment stood at 23% in 1997 and the unemployed have no unemployment insurance nor informal sector activities to fall back on. This paper examines how the unemployed are able to get access to resources without support from unemployment compensation. Analysing a household survey from 1995, we find that the household formation response of the unemployed is the critical way in which they assure access to resources. In particular, unemployment delays the setting up of an individual household of young people, in some cases by decades. It also leads to the dissolution of existing households and a return of constituent members to parents and other relatives and friends. Access to state transfers (in particular, non- contributory old age pensions) increases the likelihood of attracting unemployed persons to a household. Some unemployed do not benefit from this safety net, and the presence of unemployed members pulls many households supporting them into poverty. We also show that the household formation responses draw some unemployed away from employment opportunities and thus lowers their employment prospects. The paper discusses the implications of these findings for debates about unemployment and social policy in South Africa and in OECD countries.

Keywords: Unemployment, Household Formation, South Africa, Incentive Effects

JEL Classification: J23, J12, J61, O15

Suggested Citation

Klasen, Stephan and Woolard, Ingrid, Surviving Unemployment Without State Support: Unemployment and Household Formation in South Africa (August 2001). CESifo Working Paper No. 533; IZA Discussion Paper No. 237. Available at SSRN: https://ssrn.com/abstract=264808 or http://dx.doi.org/10.2139/ssrn.264808

Stephan Klasen (Contact Author)

University of Goettingen (Gottingen) - Faculty of Economics and Business Administration ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany
+49-551-397303 (Phone)
+49-551-397302 (Fax)

HOME PAGE: www.vwl.wiso.uni-goettingen.de/klasen.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ingrid Woolard

University of Port Elizabeth - Department of Economics ( email )

Port Elizabeth 6000
South Africa

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