Scale of unemployment challenge difficult to comprehend

19 June 2019

South Africa lost 237,000 jobs over the past quarter. This means that some 9 months after the much heralded Presidential Jobs Summit in 2018, unemployment just keeps on growing. 

The country’s extremely high unemployment means that inclusive development is a mirage. Indeed, it is impossible without faster and more labour- intensive growth. This is all the more important when large proportions of the workforce have not completed secondary schooling and are therefore unlikely to be absorbed into more skilled jobs.

The Cabinet and the new Minister of Employment and Labour need to act speedily to make the changes South Africa requires to build a much bigger and more labour intensive economy. Bold decisions are required now to start tackling unemployment especially youth unemployment in meaningful numbers.

Expanded unemployment currently sits at 38 per cent or 9,9 million people. Between the first quarter of 2009 and the first quarter of 2019, 3.6 million people joined the unemployment queue – an average of just under 1 000 people per day for a decade.

Put another way, only about 43 per cent of SA’s adults work. In most developing countries, the figure is 60 per cent or more. The scale of the challenge is difficult to comprehend, but vital. Think of it this way. Of South Africa’s nine provinces, only Gauteng and KwaZulu Natal are home to more than 9,9 million people. The total working age population in the Northern, Eastern and Western Capes combined is 9,7 million. Just to halve unemployment, South Africa would need to create 11 times the number of jobs that currently exist in the mining sector.

Little wonder, then, that so many young people are doing nothing and going nowhere. And the problem is getting worse: between 2008 and 2019 the population of young people increased by more than 2 million, but the number of young people who had jobs fell by almost 500 000.

The implications of all of this are devastating.

SA’s mass unemployment is the principal cause of poverty and inequality, contributing immeasurably to social dysfunction and political instability. Worst of all, unemployment is a terrible waste of human potential and an assault on human dignity. This should be the country’s top priority. But it is not.

A key reason for the unemployment crisis is that policymakers have been driven by a set of ideas about employment and the labour market that are unsuited to the challenges we face.

Government has chosen an approach to employment that insists workers must receive relatively high minimum wages and considerable legal protection from dismissal. The policy thrust and intention is that jobs that do not meet these requirements are not ‘decent’ and therefore not the kinds of jobs employers should be allowed to offer.

In effect, government policy implies that no wage is better than a low wage. And this approach has now been exacerbated by the implementation of a national minimum wage the level of which, in comparison with the median wage, is much higher than is common elsewhere.

SA’s labour market policy has prevented the creation of the kinds of jobs that have always been the first point of entry for unskilled workers into modernising economies, whether in Europe and the US, the industrialising countries of Asia, Mauritius, and, most recently, Ethiopia.

The ideological aversion to these jobs is disastrous. It is also in direct contravention of the advice of many international experts, who have said SA must create jobs for the many unskilled workers we actually have and not the skilled workforce we wish we had. This advice was repeated again in January 2019 when leading economists from Harvard participated in the Minister of Finance’s economic colloquia.

In South Africa, too much time is spent deriding an approach to employment that has served so many other countries well and vainly trying to invent a new approach to growth and employment that ignores the lessons of success elsewhere. Far too little time is spent thinking about the horrors of unemployment, especially young people.

Most unemployed people have few options: rural or urban misery and hopelessness, dependence long into adulthood on parents and grandparents, a life of struggle in the informal sector, subjugation to fathers, brothers and husbands. In this context working in a basic job in a factory for low wages would be attractive to many hundreds of thousands of people. And these basic jobs are not an end point and can lead, as they often have elsewhere, to better jobs, better wages and other opportunities in time.

For those who have one, there are big advantages in having a high-paying, well-protected job. But the cost of setting high minimum wages and standards that all employers in every sector must meet is that too few jobs are created. In fact, we need much more differentiation across the economy.

As UCT professors Nicoli Natrass and Jeremy Seekings have argued, greater minimum wage flexibility is neither a necessary nor sufficient solution to SA’s growth crisis. “It is necessary however, if the economy is to become more labour-intensive and hence more inclusive. This is not an argument against minimum wages in general or against health and safety regulations, all of which are important. Rather it is an argument that we need to set minimum wages at different levels for different sectors and allow wages that are appropriate for the expansion of labour-intensive jobs.”

One implication of recognising the scale and reality of these challenges is that it shows up the inadequacy of job creation projects that address only a small number of beneficiaries. Far too much energy by government, business and civil society goes into projects that help move some people further up the unemployment queue. Far too little attention is paid into promoting and implementing the policy reforms that have to take place if SA is ever to achieve millions more jobs and tackle the unemployment crisis at the scale required.

Real reform would include exempting small and newly created firms from many existing regulations, and making SA a competitive place for light manufacturing to attract the many jobs leaving China.

Creating an environment in which companies – of all kinds – are able and encouraged to create large numbers of low skill jobs is the single most important step SA could take to make its growth path more inclusive.

Unless core policies are revisited and soon, yet another Youth Day will come and go, and, despite the hot air, another generation will grow up in a country of mass unemployment and hopelessness.

Ann Bernstein is Executive Director of the Centre for Development and Enterprise. See CDE’s Agenda 2019, Tackling Youth Unemployment, and Making SA more labour intensive, www.cde.org.za

*This article first appeared in Afrikaans in Rapport