Youth unemployment

30 April 2019

Hundreds of thousands of young South Africans enter the job market every year, filled with hope and expectation about the world of work. Far too many of them end up bitterly disappointed.

We have 20 million citizens aged 15 to 34, and most of them are eligible voters. When South Africa goes to the polls on 8 May, almost 8 million of the country’s young people will not be employed. Neither will they be enrolled in any form of education or training. One of the most important questions young citizens need to ask their political leaders is what the parties plan to do about this crisis of youth unemployment.

This problem is not new. Apartheid legacies and the structural characteristics of the South African economy mean the labour market has failed to create enough jobs to absorb new entrants since the late 1970s. Technological change has made South Africa’s economy increasingly capital intensive and raised productivity: fewer workers are needed to produce the same output of goods and services. The relatively high cost of unskilled labour, and government incentives to modernise production processes, have made the employment of less-skilled labour increasingly unattractive.

Poor policy decisions by recent governments have significantly increased the costs and risks facing firms and investors. This has led to slower economic growth and made the jobs crisis far worse than it might have been.

South Africa’s dysfunctional education system is another part of the equation. Sixty per cent of those who enter the employment market without a matric certificate are jobless.

The position of young, inexperienced workers is meanwhile made especially precarious by the fact that minimum wages are not much lower than the wages paid to the typical worker in an industry. Firms have no incentive to risk employing someone who has no experience. Why do so, when an experienced workers costs about the same amount? Political parties need to explain how they stand on a fundamental trade off: Is it better for a young person to have an entry-level job, even if at a low wage, or to remain unemployed?

South Africa’s labour market policies promote collective bargaining and strengthen workers’ power in wage negotiations. Such policies, though well-intended, increase the cost of employment. By increasing the costs of taking on new workers, has South Africa made its unemployment problem worse?

- Improved training can increase the potential productivity of some young work seekers, but it will do little for the employability of the millions of young people who have already left the education system.

‘Youth entrepreneurship’ programmes have equally limited reach because young unemployed people are those least able to establish successful firms. The best training for entrepreneurship is a job, and ‘know-how’ picked up through previous work is a prerequisite for success as an entrepreneur.

Government’s responses to youth unemployment have almost all failed to recognise the scale of the challenge posed. With millions of citizens unemployed, no project or initiative that works with mere tens of thousands of young people will have a significant impact on overall outcomes.

- Parties need to explain how employment-generation can be encouraged on a much larger scale. Global experience shows that the best way to get more employment is to foster an economic environment in which private sector firms – the most important type of “employment generating programme” – are able to grow in number and size.

- The most efficient vehicles for delivering millions of jobs are firms run by entrepreneurs seeking to make a profit by supplying goods and services to paying customers.

- In its infrastructure-focused Expanded Public Works Programme (EPWP) and the Community Works Programme (CWP), government has recognised that wages lower than the prevailing norm must sometimes be offered in order to make job creation viable.

- The Employment Tax Incentive (ETI) or ‘Youth Wage Subsidy’ likewise recognises that young people are generally not as productive as more experienced, older workers and that firms will not hire them unless the cost of doing so is lower.

- This principle should be extended from the public to the private sector. Less-skilled young people should be able to find jobs by offering their services for less than experienced workers, at least while they are establishing themselves in the world of work.

When asking parties how they plan to get more young people into work, citizens should ask political leaders for their views on some practical, market-oriented policy proposals.

Policy makers should prioritize growth over all other objectives. A growing economy allows existing firms to expand, and new firms to start up, and both of these activities result in more employment. This means that well-established obstacles to growth, such as policy uncertainty and intrusive regulation, should be urgently addressed.

Political leaders should also think again about a ‘one size fits all’ approach to pay. It can sometimes make a dramatic difference if an unskilled young worker can start a low paying job today. This will provide her with work experience and access to networks that will enable her to find rewarding work in future. It surely cannot be right for policy makers to focus unremittingly on improving working conditions and wages for older workers, while ignoring the interests of the jobless young.

Government also needs to encourage skilled immigration. Far from taking jobs that would otherwise be available to young South Africans, evidence shows that skilled immigrants and entrepreneurs boost economic growth and the demand for low-skilled local workers.

Parties that want to run the economy must show how they will achieve the labour intensive growth we need. Government should focus support on labour- rather than capital-intensive sectors, and help lower the cost of labour relative to capital. One way to do this is to support light manufacture and tourism. These labour-intensive sectors link South Africa with the seven billion consumers of the global economy and so offer vastly more growth potential than firms serving the domestic market alone. Parties must be asked which labour-intensive sectors they would grow, and how they would achieve this.

Parties can make great progress simply by talking to businesses and finding out what support they need. Firms, and not bureaucrats, are best placed to identify priorities. All training institutions need to work as closely as possible with potential employers, business organisations and others who understand the needs of the evolving labour market. Small enterprises, in particular, need to be unshackled from needless regulatory chains that prevent them from employing many more young people.

Political parties are often asked if they favour lower youth unemployment, and they invariably say yes. This is no surprise. But South African citizens -- especially young people without jobs -- deserve coherent policy proposals rather than merely expressions of good intentions. Parties must explain how exactly they will make it easier for job-creating businesses to drive forward labour-intensive growth.

Unless action is taken about unemployment soon, many of our jobless young people will be condemned to a lifetime of exclusion from formal sector employment. Such a human tragedy would crush the hopes of millions of citizens. It would also further poison South African politics, and threaten the viability of the country’s democratic system of government.

Ann Bernstein is head of the Centre for Development and Enterprise. This article is based on a new CDE report, Agenda 2019: Tackling Youth Unemployment, www.cde.org.za

This article was first published on Daily Maverick