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ECONOMICS

COUNTERING THE COUNTERFACTUAL

A Qualitative Ex-Ante Analysis


of the Job Fund and its Potential
Effects

This article therefore presupposes the Fund will be able to achieve the goal
of 150,000 jobs and then looks at the possible unintended consequences.
It advocates an awareness of the possible unintended consequences that
policy makers should plan for and, where possible, mitigate.
By George Lwanda

n June 2011, the South African


government announced the launch
of a R9 billion job fund. The
purpose of this fund is to create 150
000 jobs over a three year period.
About 22% (R2 billion) of the total
R9 billion is available for disbursement
this year.
The funds intention is self
explanatory and is based on a
challenge fund principle which aspires
to see the fund playing a catalytic role
in identifying interventions directly
contributing to the creation of long-term

employment. Given the countrys


persistent unemployment problem, the
nobility of the initiative cannot be over
emphasised.
Contextualising the job fund
South Africa is confronted by
persistent unemployment which has
seen, amongst other things, the number
of discouraged job seekers rising 52%
between the third quarter of 2008
and the end of the first quarter 2009.
Compounding this is the fact that after
shedding an estimated one million jobs

during the recession, the economy


has continued to shed jobs even at a
time when it is recovering from the
recession.
This trend highlights the danger
the economy faces of unemployment
hysteresis. Simply put, unemployment
hysteresis refers to a condition when
formerly employed people who have
lost their jobs due to economic shocks
end up in perpetual unemployment
to the extent that they give up looking
for jobs hence increasing the stock of
discouraged job seekers. This, coupled

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ECONOMICS
with poor service delivery in poor
areas, has further fuelled a sense of
exclusion by the poor resulting in what
this article refers to as a them belly
full but we hungry situation.1 It is this
situation, this article contends, that has
invigorated service delivery protests
in South Africa and has inspired
sometimes violent regime change
actions in the Arab world.
That said, the funds strongest
point arguably is the challenge fund
approach which, if appropriately
and transparently applied has the
added potential of improving relations
between government and the private
sector whilst mobilising various
stakeholders of the economy into fruitful
partnerships. Additionally, the job fund
has the potential of strengthening
existing government interventions. Such
interventions include the R20 billion
tax incentives for the manufacturing

issues regarding any policy intervention.


Counterfactual
reasoning
in
economic policy analysis is arguably
easier when conducting ex-post
evaluations. This is because in ex-post
analyses counterfactual analysis will
revolve around establishing what
would have happened had the policy
intervention not been implemented.
The significance of establishing the
counterfactual in this case then is that
there exists a myriad of confounding
factors that can distort policy
evaluation hence creating the illusion
that ineffective policy interventions
are actually effective (or vice versa). In
order to remove these confounding
factors it is essential to establish what
would have happened had the policy
intervention not come in.
To assist in illustrating the challenge
an analogy can be made using medical
treatment. Medical conditions, like

blind, placebo-controlled studies and


therefore it is left to the evaluator
to establish the counterfactual using
some form of analytical modelling
that simulates double-blind, placebocontrolled trials.
The Job Fund: Establishing the
ex-ante Counterfactual
However conducting an ex-ante
analysis using counterfactual reasoning
is a bit more complicated. In positing
an ex-ante evaluation of a policy
intervention the aim is to study the
expected outcomes of a specific
policy intervention with the particular
intent of minimising any negative and
unintended consequences of the policy
intervention. This, in part, is informed
by the law of unintended consequences
which urges caution when formulating
and implementing interventions in a
complex system such as an economy.

This is likely to lead to the fund, as the CEO of the Durban Chamber of Commerce, Andrew Layman
puts it, reeling in the fish at the expense of the small fry.
sector as well as the R10 billion for
job creation projects that the Industrial
Development Corporation (IDC) is
managing. Given this background, it is
only intuitive that any failure to create
jobs will not be due to the lack of trying
and most certainly not out of want of
funding.
Nevertheless the fund still exhibits
some loose ends that need to be
tightened. The proceeding sections
analyse two of these loose ends. The
aim is to contribute ideas on how such
an important government initiative
can improve peoples lives and why
it should be seen in that constructive
light.
The Importance of Establishing the
Counterfactual
It is important to point out that
the articles reasoning is based on a
simplified form of counterfactual
reasoning.
The
importance
of
applying appropriate counterfactual
reasoning in policy analysis cannot
be overemphasised as it provides a
benchmark from which the effects of a
policy intervention can be unpacked.
This facilitates the analysis of salient

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THE THINKER

regional policy, are an area of life that


cannot simply rely on common sense
observations for explanation. Medical
treatment evaluation, like regional
policy evaluation, is confronted by
the confounding factors referred to
above. Consequently it is important,
in order to evaluate the efficiency of a
medical treatment to isolate the actual
effect of the treatment by establishing
what would have happened had the
treatment not been taken.
However, by using randomised,
double-blind, placebo-controlled trials,
medical treatment has managed to
obtain a fairly easy way of establishing
the counterfactual. In such trials, some
participants are given the treatment,
others are given fake treatment
(placebo), and neither the researchers
nor the participants know which is
which until the study ends. At the
end of the trial it is possible to not
only establish the actual effect of the
treatment but also the placebo effect
or what would have happened had
the treatment not been taken, hence
establishing the counterfactual.2
Policy evaluation and analysis
cannot be conducted using double-

This is because interventions in complex


systems will always create unintended
and undesirable outcomes.
In the specific case of the job fund
and with regard to the approach
adopted by this article, this involves
an analysis of the impacts of a policy
intervention which incorporates the
expected socio-economic effects if the
policy intervention is implemented
successfully. This means that instead of
examining what might have occurred if
a particular policy intervention had not
taken place, the examination centres
on the socio-economic effects of the
intervention assuming it achieves its
primary objectives.
This article therefore presupposes
the Fund will be able to achieve the
goal of 150,000 jobs and then looks at
the possible unintended consequences.
It advocates an awareness of the
possible unintended consequences
that policy makers should plan for and,
where possible, mitigate.
With the average household size
in South Africa estimated at four, the
Fund has the potential of ensuring
that at least 37,500 households
nationwide will have one member of

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ECONOMICS

the household employed. The positive


social and economic spin offs include
higher household incomes through the
multiplier effect, increased tax earnings
for the fiscus, potentially lower
expenditure on transfers and generally
greater social inclusion.
The catch
In its current form the Fund has
two main weaknesses. The first is
that the Fund seems to not have any
displacement criterion. In theory this
means that there is no mechanism
to limit the instances in which jobs
created by one project are offset by job
losses elsewhere within an enterprise or
geographic location. The ideal situation

Durban Chamber of Commerce,


Andrew Layman puts it, reeling in the
fish at the expense of the small fry.
Since economic activity is generally
disproportionally
concentrated
around the provinces of Gauteng, the
Western Cape and KZN, and given
the unrestricted nature of the call
for applications, the fairly technical
nature of the application process and
the requirement that applicants be
amenable to providing a portion of
the funding, it is not unreasonable to
expect that the majority of qualifying
applicants will be from Johannesburg,
Durban, Pretoria and Cape Town.
This has the potential of exacerbating
unbalanced
economic
growth

A possible solution
A possible way in which the effects of
the identified weaknesses can be dealt
with is for the Job Fund to incorporate
an aspect of regional assistance that
primarily aims at reducing or at least
containing unemployment disparities
across the regions of the country.
This is not easy and will require
more homework on the part of the
authorities. Authorities will have to
understand the South African regional
economies and the disparities amongst
the regions, their causes and, more
importantly, why they persist over time
and why past interventions have not
been so successful.
It is important to point out that whilst
selective regional assistance to predetermined worse off areas is not the
panacea to either unemployment or
disparities in the regional economies
of the country, it will go a long way
towards stimulating regional economies
and alleviating the them belly full but
we hungry affliction.
Conclusion
The Job Fund is, to date,
governments boldest step to show
its commitment towards its stated
aim of creating jobs. Its emphasis on
partnerships lends further credence to
governments seriousness. Additionally
its phased implementation over a
three year period facilitates learning by

The migration of labour from high unemployment areas to areas of relatively less unemployment
has the potential to exert increased pressure on the provision of social services and competition for
resources in the latter areas.
is one in which these new jobs lead to
a high absorption of previously idle
labour resulting in the employment
of previously unemployed labour at
minimal cost to existing jobs.
The importance of this is illustrated
by the fact that the ILO has a dedicated
guideline manual on the tools that can
be used to minimise employment
displacement.
The second weakness lies in the
way eligibility to the Fund has been
formulated. The Job Fund brochure
states that The Fund will not limit
investments to specific sectors or
geographic regions. This is likely to
lead to the fund, as the CEO of the

amongst the economys provinces


as job seekers will be generally
forced to move from areas of high
unemployment to areas with relatively
less unemployment.
This has the potential of leading to
increased feelings of social exclusion in
the worse off regions with the potential
of fuelling future social upheavals
in these regions. Additionally the
migration of labour from high
unemployment areas to areas of
relatively less unemployment has the
potential to exert increased pressure
on the provision of social services
and competition for resources in the
latter areas.

doing. As argued in this has article it


has the potential of increasing feelings
of social exclusion amongst the poor
increasing sentiments that the Fund is
but merely a R9 billion tender. Failure
however is not an option as the losers
will inevitably be the whole country.
References:
1.
The expression is borrowed from Bob Marleys song
with the same title. In this situation the poor and
unemployed increasingly start to distrust government
as they experience a progressive decline in their
living standards in tandem with large improvements
in living standards of the elite leading them to ask
the metaphorical question why the rain has fallen
but the dirts still tough and the pot a cook but the
foods not enough referring to the fact that the elite
are not only benefitting at their cost but are doing so
corruptly.
2.
This is a very simplistic explanation of the placebo
effect.

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