Grants don’t create jobs

The social relief of distress (SRD) grants “have absolutely no impact on employment outcomes relative to someone that did not receive a grant”, and, in the long term, the “probability of employment is zero from a social grant”.

This is according to Professor Haroon Bhorat from the University of Cape Town (UCT), who was speaking at a policy dialogue with officials from the National Treasury.  

Bhorat also serves on the Presidential Economic Advisory Council (PEAC) set up by the President to stimulate economic growth and employment. 

Bhorat suggested that the money allocated to the SRD grant, sometimes known as the “Covid grant”, should instead be allocated to the informal sector to spur economic growth and employment. 

The grant was implemented during the Covid pandemic as a temporary measure to provide income support for those who lost their jobs due to the lockdowns. 

However, the government has extended the grant several times and is considering making it permanent as a Basic Income Grant. 

According to Bhorat, the “grant has absolutely no impact on employment outcomes”, and the longer-term effects of the grant on “increasing the probability of employment is actually zero”. 

“Nevermind employment outcome, there is zero impact on jobs search, and there is a muted impact on starting a business.”

Bhroat’s research team at the Development Policy Research Unit at UCT did a study to compare the employment outcomes of grant recipients and nonrecipients. 

Initially, the grant positively impacted the probability of employment, raising the chances of employment by 3% relative to someone who did not receive the grant. 

This positive impact faded over a year and, in the long run, had zero effect on employment. Bhorat questioned what the government’s aim is with social grants. 

“What are we trying to solve for? Because, if we are trying to solve for employment, at least in the long run, it is unclear that grants will increase employment.”

Give it to the informal sector

Bhorat told the policy dialogue that other policy options should be used to direct the funds to the informal sector, with some going to the formal sector.

This would drive sustainable growth through investment, development and by increasing the supply of goods rather than only increasing the consumption of goods.

Most of South Africa’s policy alleviation strategies have focussed on household consumption and not on the productivity of companies from the informal sector and even listed companies.

Thus, Bhorat called for policies focusing on the supply side of economics that benefit companies, such as deregulation and infrastructure development. 

This is a more sustainable way to help the unemployed as it will increase the likelihood of employment, presenting a permanent solution to the problem and not a temporary measure.