Is employment a panacea for poverty? A mixed-methods investigation of employment decisions in South Africa

Unemployment is a key determinant of poverty in South Africa and labour market inequalities reflect deep-rooted socio-economic inequalities. In a context of high rates of poverty and unemployment, we would expect a job loss to be associated with a decline in wellbeing. Using nationally representative panel data and original qualitative data collected in Cape Town, I find that, on average, this hypothesis holds. However, this aggregate effect conceals heterogeneities in the relationship between labour market transitions and wellbeing which are of special analytic interest. In particular, this study focusses on those cases which go against the grain of the overall labour market-wellbeing nexus – that is, cases in which black, urban youths turn down or quit wage work. An analysis of these examples helps illuminate how disadvantaged workers face non-negligible disincentives to certain forms of low-skill employment and reveals the circumstances under which these disincentives may outweigh the disincentives to unemployment. To aid this investigation, I develop a model which analyses the welfare effect of job losses as being jointly determined by the strength of outside options and disincentives to work. Using qualitative data, I provide evidence in support of this model and show that, under certain circumstances, transitioning out of employment will be the welfare optimising choice for workers: Younger workers with no dependants and with alternative sources of support can be said to have stronger outside options, and are especially likely to turn down or quit low-quality jobs. Older workers, with dependants and without alternative sources of support, are more likely to accept and persist in low-quality jobs. This study argues that understanding the complexity of the incentives that workers face and which inform labour market choices will be indispensable in effectively designing policies which aim to reduce inequalities in labour markets – in South Africa and beyond.