Policy Expectations and Programme Reality: The Poverty Reduction and Labour Market Impact of Two Public Works Programmes in South Africa

Working and discussion papers
May 2004

This paper focuses on the question of state intervention to promote employment and reduce poverty through public works. Public works are a key component of the current social protection framework in South Africa, constituting the only form of social support for the able-bodied working-age population. Public works programmes are centrally placed in the conceptualisation of social policy space and are ascribed considerable potential in terms of addressing the core challenges of unemployment and poverty. Despite this policy prominence, the targeting of public works programmes (PWPs) and their microeconomic and labour market impacts have not been studied systematically in South Africa, rendering evidence-based policy development in this area problematic.

This study explores the contribution of public works to social protection in South Africa, drawing evidence from two case studies, the Gundo Lashu programme in Limpopo and the Zibambele programme in KwaZulu Natal. It attempts to provide some initial responses to the question of the targeting of PWPs and their microeconomic and labour market impacts in order to establish an evidence base for future policy development, and to identify some of the key policy lessons arising.The study is put into context by a brief overview of poverty and unemployment, and the social protection policy framework in South Africa. Poverty and unemployment are the two key economic challenges in contemporary South Africa. Unemployment has been rising for 30 years, and reached a plateau in 2003 at extremely high levels, standing at 31% in March 2003 by the narrow definition, and 42% by the broad. It is concentrated in the African population. Major structural changes in the economy, arising from shifts in labour intensity and declining primary sector activity, are having a significant impact on both total employment levels and the composition of labour demand, leading to slow employment growth during the 1990s (McCord and Bhorat, 2003), and a significant decline in the demand for unskilled labour (Bhorat and Hodge, 1999). Economic growth rates are insufficient to absorb the growing pool of unemployed labour. Even in the most positive growth scenario it has been estimated that broad unemployment among the semi-skilled and unskilled would not fall significantly below 30% in the medium term (Lewis, 2001: 55). Unemployment is structural and will not be significantly reduced in the coming decades without major state intervention.

Of a total population of 45 million, 24 million live below the poverty line (Stats SA, 2000), and 13 million live in destitution, with income levels less than half the poverty line (Samson, 2002: 72). These poverty levels are closely correlated with unemployment, with the poorest experiencing unemployment rates of more than 70% (Samson et al., 2003). The majority of households in the bottom 4 income deciles have no members in employment. Given the strong correlation between wage income and poverty in South Africa, responding to unemployment is clearly a key policy challenge.

Social protection and labour market policy in South Africa are limited, however, in terms of support for the working-age unemployed poor, for whom no social grants are available. Labour market policy is primarily focused on the promotion of GDP growth, with a small number of skills training interventions. The only other policy intervention accessible to the working-age unemployed poor is the national public works programme (the Expanded Public Works Programme or EPWP) which aims to provide between 100,000 and 200,000 short-term jobs each year. Given this limited number of short-term employment opportunities to be offered, it is crucial to examine which groups are likely to benefit from participation in such a programme, and the nature of the benefits accruing to them. Hence two PWPs are examined in this study in order to evaluate the potential of public works to function as a social safety net and/or supply-side stimulus in the labour market. The case-study programmes were chosen for their differing design and implementation modalities, and their inclusion in the policy debate relating to the national EPWP. The Gundo Lashu programme, in particular, is being used as a model for the labour-intensive construction component of the EPWP.

The empirical component of the study is based on a household survey administered to current and former PWP employees and members of their households between June and September 2003, in rural areas of Limpopo and KwaZulu Natal, two provinces with similar unemployment and poverty profiles. The survey work was supported by qualitative focus group discussion work prior to and following implementation of the survey. In both provinces the research was carried out in partnership with the provincial authorities implementing the programmes, the Roads Agency Limpopo and the KwaZulu Natal Department of Transport.

The sample was selected from a sample frame including all employees recorded in both programmes, and the survey was administered to a total of 676 households (containing 4,792 individuals), on the basis of a one-stage random selection process in Limpopo, and a two-stage random selection process in KwaZulu Natal. The KwaZulu Natal sample was drawn from throughout the province in areas where the programme was operational, while the Limpopo sample was drawn from the two clusters within the District of Capricorn (Mankweng and Sekhukhune) where the programme was implemented. Two principles guided the design of the questionnaire: compatibility with the March 2003 Labour Force Survey which was used for comparative purposes, and the need to yield the information necessary to inform future public works policy and programme development.

The survey explored the demographic, labour market and socio-economic identities of participants in the two programmes, and the impact of programme participation on participants, using a range of poverty indicators. To assess the targeting of each programme the characteristics of the public works households and employees were compared with data for non-urban (in the LFS the term non-urban includes the categories rural and peri-urban. For ease of reading, the term rural is used in place of non-urban throughout the following analysis, although it includes both rural and peri-urban.) populations from the two provinces, derived from the March 2003 Labour Force Survey, which was used as a control, and also with each other, where appropriate, in order to assess their relative socio-economic status on the basis of a range of income and other capability-related indicators. The two samples had significantly different demographic and socio-economic characteristics, with the KwaZulu Natal PWP workers being predominantly female, older, less well-educated and more likely to be part of female-headed households, while the Limpopo PWP workers were younger, more gender-balanced, and better educated. Given the similar profiles of the rural population in both provinces, the findings indicate that the two programmes were attracting different segments of the population in terms of the demographic characteristics of the PWP workers.

The survey also indicated a significant difference in the socio-economic status of the households in the two programmes. The Limpopo sample was less 'poor' according to a range of different socio-economic indicators, such as literacy and education level of workers, or asset ownership, and had greater levels of participation in education, better levels of nutrition (as evidenced by the incidence of skipping meals) and higher household income than the KwaZulu Natal group, which was highly impoverished by all poverty indicators. These differences reflected the differing targeting criteria and objectives of the two programmes, as well as their institutional and implementation modalities, and had a significant impact on their poverty and labour market outcomes.

The survey found unemployment rates among PWP household members which were 10% and 24% in excess of the broad provincial figures for Limpopo and KwaZulu Natal respectively, suggesting that unemployment within the PWP households may be greater than the provincial norms, and that the programme participants were appropriately targeted in terms of their employment status. The conclusion from these figures is that both groups are facing severe levels of unemployment, with the situation being particularly grave among the KwaZulu Natal non-PWP workers. Among household members who were employed in the programmes, employment was in the form of irregular casual labour for 21% of the Limpopo sample and 63% of the KwaZulu Natal sample. Both groups experienced a high degree of marginalisation from the formal regular labour market. This was particularly acute among the KwaZulu Natal households.

In both groups 25% of PWP workers gave up alternative employment in order to participate in the programmes. The primary work forgone was informal sector employment, which was survivalist in nature with poor job security and low returns. In this context, security of employment was perceived as the core benefit of participation in the programmes, particularly the KwaZulu Natal programme which offered 'permanent' employment (employment was offered on the basis of a one-year renewable contract). Workers stated that they would give up or refuse higher paid temporary work in favour of PWP employment, if engaging in higher paid temporary work entailed giving up the security offered by PWP participation. The key attributes of the KwaZulu Natal PWP which justified the preference for a lower, secure income over a higher temporary one were: the prolonged duration (enabling consumption smoothing and so facilitating improved household budgeting, saving, taking loans, etc.), the flexibility of working hours (enabling PWP participation to be combined with other household responsibilities or income-generating opportunities), and the household allocation of employment (with the employer sanctioning the employment being passed on to other household members in the case of sickness or death of the nominated worker). These unusual design elements meant that the programme maximised the potential for participation by the poor, and also the benefits derived from participation. Workers in both programmes preferred to maintain their employment in the schemes rather than engage in alternative casual (unpredictable) employment even if it offered higher remuneration, although this was only possible in the KwaZulu Natal programme, since the Limpopo programme offered exclusively short-term employment.

A key insight from the survey was that participation in the programmes did not move the majority of households out of poverty, on the basis of an adjusted per capita poverty line of R486 a month. Even with PWP income, 99% of the KwaZulu Natal households and 89% of the Limpopo households still fell below this poverty line. However, while participation in the PWP did not move these households above the poverty line, it did contribute to a reduction in the poverty gap, and hence reduced the intensity of poverty experienced in workers' households.

Despite the continued high levels of income poverty, in all cases positive impacts on various dimensions of poverty (ownership of financial and material assets, expenditure patterns relating to PWP income, education, and nutrition) were reported for both the Limpopo and KwaZulu Natal households, as a consequence of participation in the programmes. The initial situation of the KwaZulu Natal households was consistently found to be one of greater poverty than the Limpopo households; consequently benefits which were marginal for Limpopo households were more significant among KwaZulu Natal households. In the case of the KwaZulu Natal programme, there are indications that the sustained transfer is impacting significantly on factors which influence the reproduction of poverty, with a reduction in chronic under-nutrition and increased participation in education being major beneficial outcomes.

However, the impermanence of these benefits in the context of the short-term Limpopo programme was highlighted by the fact that, when asked whether participation in the programme had led to a sustained reduction in household poverty, only one-third of those who had completed a period of PWP employment replied positively. For the Limpopo workers the income benefit of programme participation had the characteristics of a 'wage shock' rather than a sustained increase in income, engendering different usage of the wage transfer as compared with the KwaZulu Natal workers for whom access to income was sustained.

Two issues emerge from the above discussion of the impacts of PWPs: (i) the anti-poverty impacts of PWPs may be marginal if they are not targeted to the poorest, and (ii) the duration of poverty-reducing benefits arising from short-term PWP employment may be limited to the period while the wage transfer is taking place. A short-term period of employment in a PWP is unlikely to have significant sustained social protection outcomes. If these are desired, a medium- to long-term intervention is required which will enable consumption smoothing and accumulation in the form of assets and/or savings, benefits which were discernible in the KwaZulu Natal programme, which offered sustained employment, but less apparent in the short-term Limpopo programme. This represents a critical insight into the limitations of short-term public works as an instrument of social protection, and a challenge to the assumptions of the current policy discourse.

The survey yielded no evidence of improved labour market performance as a consequence of PWP labour market experience or training. This is not surprising, given the extreme levels of rural unemployment and the stagnant demand for unskilled and semi-skilled workers, and could in addition be related to the supply-side characteristics of the participants. Likewise, skills training was not seen by workers to contribute to improved labour market performance. While the Department of Public Works characterises the post-PWP employment options as 'graduating to employment under normal conditions', the evidence from the survey suggests that workers may rather graduate to 'unemployment' under normal conditions, returning to the status quo ante in terms of their labour market performance. The survey findings indicate that unemployment among former PWP workers in Limpopo was higher than among household members without PWP experience. Workers aspired to move up the labour market hierarchy into employment as contractors, but recognised that the lack of skills and of access to capital rendered this unlikely. Equally, micro-enterprise activity by workers using wage income as capital was also limited, largely due to capital constraints and the absence of complementary micro-finance inputs. In neither case was significant local economic development evident as a consequence of the wage transfer. The KwaZulu Natal programme did not appear to have had a significant impact due to the fact that the workers did not form a concentrated local market, and the bulk of their wage expenditure was made in local towns as a consequence of the payment modalities of the programme. The Limpopo programme did create local demand; however, the duration of this effect was limited to the period of the employment.

If programmes are to have a significant impact in terms of either social protection or employment, the study indicates that targeting and rationing of access to PWP employment are critical, given the level of excess labour supply. In the context of chronic mass unemployment and poverty, low prevailing rural wages, and the extremely limited employment opportunities offered through PWPs, the principle of 'less eligibility' appears to be an inadequate targeting tool and is compromised by the significant excess demand for PWP jobs. In the light of this, clearly defining programme objectives and ensuring the participation of the appropriate groups are essential. The Limpopo programme had both social protection and labour market objectives, and the study indicates that the existence of these dual objectives led to contradictions in the selection of participants. If the objective of the intervention was to promote labour market performance, the unemployed youth would have been an appropriate target (although, as the survey findings indicate, such an intervention may be of limited benefit, given the restricted nature of labour demand). If, by contrast, poverty alleviation or social protection was the objective, then older women or female-headed households in remote areas where poverty and unemployment were concentrated would have been most appropriate. The study indicates that the inclusion of dual objectives may lead to targeting errors, and a dilution of both the social protection and labour market benefits of the intervention.

Given the episodic and unpredictable nature of employment opportunities in the survey areas and the low prevailing wages reported in the focus group discussions, it is clear that, whether remuneration is set at the minimum wage, as in the KwaZulu Natal programme, or at the minimum wage less a negotiated margin, as in the Limpopo programme, the PWP wage is likely to be attractive to a large proportion of the rural workforce, and not just the 'poorest'. The study indicates that, even with the relatively generous effective wages offered in these programmes, the majority of participants remain below the poverty line, and hence to pay less than these rates would be unlikely to make a significant impact on poverty or employment performance, and may be problematic in moral terms.

The key policy implications arising from the study are:

# Programme objectives (social protection, employment, etc.) should inform programme design.

# There is a need to explicitly target and ration access to PWP employment, as self-targeting through the principle of 'less eligibility' via restricted wages is not adequate in the context of mass unemployment.

# Targeting criteria for beneficiary selection (youth, rural female household heads, etc.).should be developed in line with the intended programme objectives.

# The rationing process should be linked to the selection criteria (rather than first-come-first-served or lottery-based processes).

# Sustained employment is required for significant anti-poverty benefits to accrue.

# Investment in social development processes can enhance the poverty impacts of a programme and community ownership, but this can only be achieved through a sustained intervention.

# PWP participation alone is unlikely to significantly enhance labour market performance or increase net employment.

# Skills training offered to PWP participants should be appropriate in terms of local labour demand.

# PWP implementation should be linked to other development initiatives, such as microfinance, in order to promote sustainability and second-round benefits.

# Institutional modalities and incentives should impact on targeting performance.

# As currently conceptualised (for reasons of both design and scale), PWPs have no prospect of constituting an adequate policy instrument to address the social protection gap facing the working-age unemployed.

The report concludes that there is a fundamental tension in the conceptualisation of the role of public works in relation to the South African labour market. On the one hand, there is an explicit recognition by the government that PWPs have only a limited role to play in the context of entrenched and structural unemployment (ANC, 2002a). However, at the same time there is also a heavy reliance on PWPs as a key component of a comprehensive employment strategy (ANC, 2002b). Although there are a range of additional supply-side interventions, PWPs have almost come to dominate the current social protection and labour market discourse, representing, together with economic growth, the policy instrument of choice to address both poverty and unemployment. The analysis underlying this approach is predicated on the assumption that supply-side interventions can have a significant impact on poverty and unemployment among the low-skilled, an analysis which is problematic when the fundamental problem is the ongoing structural shift in the South African economy and the delinking of economic growth and employment.

While PWPs, if appropriately designed, can offer a partial response to the problems of poverty and unemployment, the findings of this study indicate that the gap between policy expectation and programme reality is significant, and that PWPs cannot offer an adequate social protection response to the growing problem of the working-age poor. There is an urgent need to open up the policy space to address this critical problem.