South Africa’s economic policymakers have to confront the challenge of creating jobs to absorb the unemployed. The 2011 census reveals an unemployment rate of 40%, with over 8.7 million South Africans registered as unemployed. One of the main strategies to address this challenge is focused on stimulating labour absorption by enhancing the education and skills of the unemployed (or those who are not economically active, such as students). This strategy looks to established, formalised, businesses to provide employment. The emphasis on the formal sector is understandable, given that formal businesses account for about 75% of the 13 million South Africans in employment.

Yet many economically active South Africans do not work in formal businesses. The census records that about 3 million South Africans are employed in the informal sector and private households. The informal sector not only provides work, as the census data confirms, but a range of livelihood opportunities for both those classified as employed and those classified as not economically active. For example, it provides opportunities for those in employment to earn extra income by running micro-enterprises after hours or over the weekend. The significance of the informal economy to South Africa’s economic growth path has been understated in policy debates and indeed overlooked in the National Development Plan.

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Written by Andrew Charman, Director and researcher, Sustainable Livelihoods Foundation

This article was first published on the Econ3x3 website – Accessible policy-relevant research and expert commentaries on unemployment and employment, income distribution and inclusive growth in South Africa.