South Africa was hit by the COVID-19 pandemic at the end of March 2020 and soon became

one of the worst-affected countries. In an attempt to contain the spread of the virus, containment
measures such as the nationwide lockdown were implemented. COVID-19 has brought forth
many repercussions and challenges, however, it undoubtedly had a substantial impact on the
existing high levels of unemployment in South Africa. This claim will be supported by defining
and discussing the concerns of the measure of unemployment, exploring the impact that
lockdown specifically had on unemployment, illustrating the impact that the COVID-19 induced
unemployment has on the price and wage-setting curve and finally discussing the challenges of
long-unemployment spells and its consequences on the youth.

Unemployment is described as being of working age, unemployed, willing to work and actively
seeking work (Van der Merwe, 2021). It can be further defined and divided into narrow
unemployment and broad unemployment. The narrow unemployment rate is described as the
number of unemployed people who actively pursued jobs within a given period (Van der Merwe,
2021). The broad unemployment rate includes individuals who are available to work, but have
not actively sought jobs (Van der Merwe, 2021). The unemployment rate varies depending on
the definition of unemployment used (Van der Merwe, 2021). Over time, the unemployment rate
has remained consistently high (Reuters, 2021). Unemployment rose sharply at the start of the
pandemic, then dropped faster than anticipated. The decrease in the unemployment rate is not
due to an improvement in the labour market; rather, it is a result of the lockdown, since the
narrow definition of unemployment demands that people search for and be eligible for jobs
(Reuters, 2021). The unemployment rate can be deceptive due to the following reasons. The
unemployment rate does not include discouraged workers (Dixon, 2018). Some individuals are
eligible for and capable of working, but are currently unemployed and have not taken any
concerted efforts to pursue jobs in the last four weeks (Dixon, 2018). The long-term
unemployment rate is not included in the unemployment rate (Dixon, 2018). An individual is
called long-term unemployed if they have not worked for at least twenty-seven weeks. It,
therefore, does not include how long people have been unemployed (Dixon, 2018). The
unemployment rate does not take into account whether or not workers have low-paying jobs
(Dixon, 2018). These underemployed people constitute a sizable proportion of the labour market
and the unemployment rate is often misleading unless the problem of underemployment is

1
addressed. The reasons of concern listed above contribute to the stubbornly high levels of
unemployment in South Africa. The impact of the nationwide lockdown on unemployment in
South Africa will be discussed in the following paragraph.

South Africa was in a recession before COVID-19 and it has long been plagued by high levels of
unemployment (Reuters, 2021). The early and stringent lockdown flattened the outbreak curve
while steepening the recession curve. (The Conversation, 2021). Cyclical unemployment occurs
during recessions and is, therefore, most suited to this context. People are unemployed because
the economy has slowed and demand for labour decreases (Anderson, 2021). Firms in different
sectors and economies struggle simultaneously during a recession, meaning the number of
unemployed people searching for new employment rises exponentially (Anderson, 2021). The
sectors most affected by the COVID-19 pandemic were the mining, construction, transport and
services sectors (The Conversation, 2021). There was a decline in GDP growth due to a decline
in economic activity which contributed to rising unemployment and poverty rates (The
Conversation, 2021). Households reliant on unskilled labour income suffered the worst since
these jobs were the most restricted following the lockdown (The Conversation, 2021). Economic
activity is reduced as remote working through technology is not open to all economic sectors,
which lowers income for economic agents (Francis, Valodia & Webster, 2020). People may
discover that new jobs pay less or are more precarious. Workers with low to medium skill levels
are now more likely to be working in lower-paying, more unstable jobs (Francis, Valodia &
Webster, 2020). Women, less-skilled employees, informal workers, low-income earners and
those with a history of unemployment were most affected by the lockdown (Schotte & Zizzamia,
2021:4). Due to permanent layoffs or company closures, many South Africans were not
employed during the lockdown, however, with the relaxation of confinement policies,
commercial activity resumed and labour markets partially recovered (Schotte & Zizzamia,
2021:4). The abrupt economic shock caused by the lockdown triggered a reconfiguration of the
labour market and increased unemployment (Francis, Valodia & Webster, 2020).The impact of
COVID-19 induced unemployment can be illustrated on the wage and price-setting curve.

The wage-setting curve gives the real wage necessary at each level of economy-wide
employment to provide workers with incentives to work hard and well (Bowles, Carlin &
Stevens, 2017).

2
 Graph showing Labour Discipline Model

Best response function with high unemployment rate

Effort per hour Best response function with low unemployment rate

B
A

WL WH

Reservation wages
Hourly wage
The graph above shows that as unemployment rises, workers' bargaining power falls and the best
response curve shifts to the left, pushing them to accept lower pay with a higher level of effort
(Bowles, Carlin & Stevens, 2017). Workers reduce their reservation wage when unemployment
is high because they know job loss results in a longer estimated period of unemployment
(Bowles, Carlin & Stevens, 2017). People are more likely to work if their wages are higher. In
the graph below, the dashed line from the high level of unemployment shows that the wage is
set at wL. (Bowles, Carlin & Stevens, 2017).

Graph showing the Wage-setting Curve

3
 B
W
Real wage, w
H

Wage-setting curve
A
WL

Unemployment: Unemployment:
Employment, N high low

At a high level of unemployment, there is a trade-off between the effect that an increase in
benefits has on reducing the cost of job losses and the need to shift to a lower point, from
point B to A, on the wage-setting curve illustrated above to maintain efficient productivity
(Hayward, 2020). The firm’s profit-maximizing wage, therefore, decreases from WH to WL
(Hayward, 2020).

Graph showing the Price-setting Curve

Labour supply

Wage-setting curve
4
 Average product of labour
A
W/P= W/P
Real wage,
Price-setting curve Old
wPSOld

B
W/P=
Price-setting curve New
wPSNew

N New N Old
Employment, N

When companies pick their profit-maximizing price, the price-setting curve gives the real wage
paid (Bowles, Carlin & Stevens, 2017). The lockdown halted economic development, resulting
in a negative productivity shock, which meant that labour became less productive, shifting the
price-setting curve down (Bowles, Carlin & Stevens, 2017). As labour productivity λ decreases,
using the price-setting curve equation, real wage will also decrease and this will shift the price-
setting curve Old down to price-setting curve New and the new equilibrium will be at point B
(Bowles, Carlin & Stevens, 2017). When there are higher mark-ups as a result of decreased
competition, the price-setting curve reduces and a higher share goes to profits (Bowles, Carlin &
Stevens, 2017). Because of the increased cost of job loss, there is less employment and lower
real wages (Bowles, Carlin & Stevens, 2017). COVID-19 created long-unemployment spells in
the labour market.

Long-term unemployment is characterised as being unemployed for 12 months or longer

(International Labour Organisation, 2015).  The incidence of long-term unemployment is
characterised as people unemployed for a year or more as a proportion of total unemployment.
(International Labour Organisation, 2015). Longer periods of unemployment are associated with
higher rates of crime and violence in communities (Nichols, Mitchell & Lindner, 2013:1). When
children grow up in a violent or crime-ridden environment, they are more likely to engage in

5
violent behaviour themselves in the future (Nichols, Mitchell & Lindner, 2013:1). This has an
impact on academic functioning by preventing young people from obtaining an education and
adding to the labour force (Nichols, Mitchell & Lindner, 2013:1). Long-term unemployment
negatively affects the income and job prospects of workers' children (Nichols, Mitchell &
Lindner, 2013:1). Lower parental earnings limit parents' financial assistance options and
children's access to resources (Nichols, Mitchell & Lindner, 2013:1). The youth were hindered
by their parent's inability to provide for them financially and were unable to seek employment
due to the lockdown (Nichols, Mitchell & Lindner, 2013:1). When people are out of work, their
capabilities deteriorate due to a lack of use (Bejakovic & Mrnjavac, 2018). This deterioration of
human capital accelerates over time, reducing a job seeker's employability and wages (Bejakovic
& Mrnjavac, 2018). Employers choose applicants with a higher level of qualifications and
experience and this affects the youth because valuable career skills were not put to use during the
lockdown, putting them at a disadvantage as their futures became unpredictable (Bejakovic &
Mrnjavac, 2018). Long-term unemployment may have a negative impact on a person's social
capital when job contact is lost (Bejakovic & Mrnjavac, 2018). Because of the deterioration of
social capital, the more a person is out of employment, the more difficult it is to find a decent
career (Bejakovic & Mrnjavac, 2018). Reduced social capital in youth can jeopardize their
academic performance and well-being, as well as their access to the labour market, as they may
behave antisocially (Bejakovic & Mrnjavac, 2018). The challenges faced with long-term
unemployment and the effects on the youth support the statement that COVID-19 increased
unemployment rates.

To conclude, this essay has discussed the impact of COVID-19 on unemployment in South
Africa and argued that unemployment has been detrimentally affected by the pandemic and its
consequent lockdown. In discussing concerns of the measure of unemployment, the impacts of
lockdown socio-economically, effects felt in the price and wage-setting curves and the
challenges of long-unemployment spells and its consequences on the youth, it is supported that
COVID-19 had exponential impacts on unemployment.

6
Reference List

Anderson, S. 2021. Unemployment and Recession—What's the Relation? Available:

https://www.investopedia.com/ask/answers/032515/why-does-unemployment-tend-rise-during-
recession.asp [2021, May 12].

7
Bejakovic, P. & Mrnjavac, Z. 2018. The danger of long-term unemployment and measures for its
reduction: the case of Croatia*. 31(1): 1837-1850. DOI: 10.1080/1331677X.2018.1521295.

Dixon, A. 2018. Top 5 Problems With the Unemployment Rate. Available:

https://smartasset.com/career/problems-with-the-unemployment-rate [2021, 12 May].

Van der Merwe, A. 2021. How the Unemployment Rate is Defined and Computed. Available:
https://cnx.org/contents/lMPlq9TQ@1.1:0J0ZD-VR@1/How-the-Unemployment-Rate-is-
Defined-and-Computed [2021, April 12].

Francis, D. & Valodia, I. & Webster, E. 2020. Politics, Policy, and Inequality in South Africa
Under COVID-19. Agrarian South: Journal of Political Economy: A triannual Journal of
Agrarian South Network and CARES. 9(3). DOI: 10.1177/2277976020970036.

Hayward, R. 2020. Changes in equilibrium unemployment. Available:

https://bookdown.org/robohay/economicsnotes/supply.html#why-do-labour-markets-not-clear
[2021, May 12].

International Labour organisation. 2015. Key Indicators of the Labour Market. Available:
https://www.ilo.org/global/statistics-and-databases/research-and-databases/kilm/
WCMS_422451/lang--en/index.htm [2021, May 12].

Nichols, A., Mitchell, J. & Lindner, S. 2013. Consequences of Long-term Unemployment.

Available: https://www.urban.org/sites/default/files/publication/23921/412887-Consequences-of-
Long-Term-Unemployment.PDF [2021, May 13]

8
Reuters. 2021. South Africa's unemployment rate jumps to new record high. Available:
https://www.reuters.com/article/us-safrica-economy-unemployment-idUSKBN2AN0S1 [2021,
April 12].

Samuel, B., Carlin W. & Stevens, M. 2017. The Labour Market: Wages, Profits and
Unemployment. Unit 9 in The CORE Team, The Economy. Available: https://www.core-
econ.org/faqs/ [2021, May 12].

Schotte, S. 2020. COVID-19 in South Africa: Temporary shock or lasting poverty trap?
Available: http://www.chronicpovertynetwork.org/blog/2020/4/23/covid-19-in-south-africa-
temporary-shock-or-lasting-poverty-trap [2021, May 12].

Schotte, S. & Zizzamia, R. 2021. The livelihood impacts of COVID-19 in urban South Africa.
Available: https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/
wp2021-56-livelihood-impacts-COVID-19-urban-South-Africa.pdf [2021, May 13].

The Conversation, 2021. COVID-19 has hurt some more than others: South Africa needs
policies that reflect this. Available: https://theconversation.com/covid-19-has-hurt-some-more-
than-others-south-africa-needs-policies-that-reflect-this-151923 [2021, May 12].