Although Johannesburg is creating wealth, economic growth does not automatically translate into a general improvement in the standard of living.
It is crucial for an economy to grow at a pace faster than the rate at which the population is growing so that there will be more resources available for each person. In addition, it creates new jobs at a rate that will significantly reduce unemployment over time. Permanent employment in the formal sector is probably the most important factor for sustainable improvement in the standard of living, given the benefits associated with a permanent formal job.
Johannesburg also seeks the type of economic growth that is associated with an improvement in the distribution of income in absolute and racial terms, areas it has also performed well.
Johannesburg is making strides on three fronts:
Its economy is growing faster than the population growth rate.
There are signs of a positive redistribution of income trend.
Johannesburg is creating a substantial number of new jobs in the right sectors.
Johannesburg's economy is growing faster than the population growth rate. Per household average income is significantly higher than the national or provincial average. In 2004, at current prices, Johannesburg's average household income was R161 656 compared to R130 982 for Gauteng and R79 488 for the entire country. This means that average household income in Johannesburg is almost double that of the national average. In addition, household incomes in Johannesburg have increased at a faster rate than both provincial and national averages.
There are signs of a positive redistribution of income trend. In most countries or regions, there are disparities in income and corresponding living standards. However, South Africa's past policies resulted in a skewed distribution of the benefits of that wealth - related to race and, to a slightly lesser degree, gender.
Using the Gini Coefficient, a widely used measure of income inequality, Johannesburg's distribution of income compares favourably with national and provincial income distribution.
However, the picture shifts when Johannesburg's 2004 Gini Coefficient is compared with that of selected countries. This comparison indicates that the distribution of income in the city is still skewed and there is room for improvement.
Factors that will improve the distribution of income include a steady and strong growth in employment, in the right sectors, such as permanent formal sector jobs in sectors that pay above-average salaries and have retirement, medical and other benefits; and an increase in broad-based Black Economic Empowerment (BBBEE) to increase the ownership of wealth.
Johannesburg is creating a substantial number of new jobs in the right sectors. In a country facing a severe unemployment challenge, understanding where jobs have been created and lost in the local economy takes on special significance. Paradoxically, the more successful an area is in creating jobs the more likely it is to attract an inflow of unemployed people looking for work. The result can be an increase in the unemployment rate, even though the economy is a net creator of jobs.
Johannesburg has 1,5-million economically active people out of a total population of close to three million. In 1996, just over one million people were employed in the city's formal economy. This grew to 1,33-million in 2004 - a net gain of 317 000 jobs over the seven years, or a 31 percent increase. Between 2003 and 2004 alone, formal sector employment increased by 48 000 jobs. Additionally, the city compares well to other metros, having created more jobs than any other metro between 1996 and 2004.
In 2004 the trade sector was the largest formal employer in the city, closely followed by the finance sector - although in absolute terms, many sectors have created new jobs between 1996 and 2004.
Reviewing the trend sector by sector it is clear trade and financial and business services have been the main drivers increasing employment in the city. The financial and business services sector increased employment by 49 percent between 1997 and 2004. Year-on-year sector growth in 2004 slowed substantially, yet still 18 000 new jobs were created.
The trade sector is also a key source of informal employment. Other large informal employment sectors are the construction and community services sectors. The observable increase in informal employment in the community services sector in the last six years is likely to have been driven at least in part by an increase in the informal provision of support services such as child care, and personal services such as hairdressing.
Higher disposable income levels increase this type of personal expenditure and consequently more people engage in offering these services as demand increases. The informal construction sector has shown a slow and steady increase in employment. This is primarily driven by residential housing demand and can be increased through aggressive stimulation of housing provision in lower income communities, as these are the major clients for informal construction workers.
In 2004 unemployment in Johannesburg was 32 percent - a figure that compares favourably to the provincial rate of 34 percent and the national rate of 40,4 percent. However, this is higher than the 27,6 percent unemployment rate recorded for 1996 for the city and is unacceptably high. It should be noted that the rise in unemployment has taken place despite the increase in the number of jobs, largely as a result of migration as well as the changes in the city boundaries.
As a result, although new jobs have been created, these increases have not been sufficient to offset the increase in the city's economically active population.