Surviving Unemployment without State Support: Unemployment and Household Formation in South Africa

High unemployment in many OECD countries is often attributed, at
least in part, to the generosity and long duration of unemployment
compensation. It is therefore instructive to examine a country
where high unemployment exists despite the near complete absence of
an unemployment insurance system. In South Africa unemployment
stood at 23% in 1997 and the unemployed have no unemployment
insurance nor informal sector activities to fall back on. This
paper examines how the unemployed are able to get access to
resources without support from unemployment compensation. Analysing
a household survey from 1995, we find that the household formation
response of the unemployed is the critical way in which they assure
access to resources. In particular, unemployment delays the setting
up of an individual household of young people, in some cases by
decades. It also leads to the dissolution of existing households
and a return of constituent members to parents and other relatives
and friends. Access to state transfers (in particular, non¡
contributory old age pensions) increases the likelihood of
attracting unemployed persons to a household. Some unemployed do
not benefit from this safety net, and the presence of unemployed
members pulls many households supporting them into poverty. We also
show that the household formation responses draw some unemployed
away from employment opportunities and thus lowers their employment
prospects. The paper discusses the implications of these findings
for debates about unemployment and social policy in South Africa
and in OECD countries.