Business and Economy

Fast growth, labour reforms can solve youth unemployment

GetBiz CEO Andile Ntingi. Photo: GetBiz

South Africa boasts the continent’s most industrialised economy, but is failing to provide jobs to millions of its unemployed youth.

With the economy now in a technical recession, it is unlikely that this crisis will end anytime soon, unless drastic policy interventions are implemented to boost growth.

So, in reality, there is very little to celebrate this youth month as millions of young people have been relegated to the bottom of the economic pyramid, with bleak prospects for getting jobs or pursuing entrepreneurship.

This year’s youth festivities are happening against the backdrop of a shrinking economy and rising unemployment, which is likely to lead to business closures and a pullback in investment as companies cut back on costs.

The unemployment rate rose to a 13-year high of 27.7% in the first quarter of this year, pushed up by a 0.7% contraction in the economy in the same period. South Africans between the ages of 15 and 24 are most affected, with 65.7% of people in this age category jobless, according to Stats SA.

Meanwhile, 41.1% of people between the ages of 25 and 34 are unemployed. Compared with its emerging-market peers, SA has unusually low levels of participation in the labour market by people of working age. About 42.6% of working-age South Africans are employed, compared with a 65% employment rate in other countries that are at a similar stage of development.

If SA’s employment rate could rise to levels close to 65%, millions of jobs could be created. To push the employment rate up by over 20% will require growing our economy by well over 5%.

With confidence in the South African government desperately low, amid media reports of rampant corruption across the state by senior ANC politicians and their cronies, the economy has little chance of growing at an accelerated rate.

Meanwhile, employers are wary of employing young jobseekers because the majority of them tend to be less skilled due to our country’s low quality of education and training.

A discussion paper on youth unemployment published by National Treasury in 2011 revealed that 86% of young jobseekers do not have a tertiary education, while two-thirds have never worked before.

The scarcity of job opportunities for young people, particularly school leavers, is worsened by the fact that employers consider entry-level wages to be too high given the risks associated with hiring inexperienced workers.

Experts who have studied SA’s staggeringly high youth unemployment conclude that the problem could be tackled by implementing a combination of policies that boost economic growth and restructure the labour market.

Within the labour market, policy interventions that increase the supply of young, skilled jobseekers and the demand for these workers have been suggested.

The most touted of these proposed interventions is the youth wage subsidy, which Treasury projected in 2011 could create more than 423 000 new jobs through incentivising employers to hire young people.

Treasury said the implementation of the subsidy would cost taxpayers R5 billion over a three-year period. However, the youth employment subsidy was vehemently opposed by trade unions, which argued that it would lead to the exploitation of workers.

A watered-down version of the subsidy was implemented for a two-year period commencing from 1 January 2014. It provided tax relief to companies setting up shop in Special Economic Zones (SEZs) in return for hiring young workers between the ages of 18 and 29.

The jury is still out on the success of this SEZ-focused subsidy in generating jobs. The youth wage subsidy was first mooted in 2008 by a Harvard-dominated international panel of 30 economists.

This panel recommended that young workers be given the subsidy but at the same time the labour market be reformed to allow employers to lay off young workers without explanation during their probation period.

This proposal caused a huge uproar in labour market circles, like another radical proposal advanced in 2005 by former deputy finance minister Jabu Moleketi, who proposed a dual-wage system in which young workers earned less than the prevailing wage agreements.

Trade unions have rejected the wage subsidy and the dual-wage system – even though such policies could help young workers enter the labour market to gain much-needed work experience, while at the same time reducing the risk to employers.

We have an army of unemployed youth because of the impasse between trade unions and employers on labour market reforms that could stimulate job creation. We could do with policies that help young people attain skills and start businesses, but these are no substitute for a dynamic, fast-growing economy.

A wage subsidy will also not have the desired impact in a contracting economy.

A robust economy could act as a wave that lifts all boats. When our economy was growing at an average of 4.9% between 2003 and 2008, we created more than 2m jobs and cut the unemployment rate to 21.95%, from 27.1% in 2003.

Employment growth was smashed by the global recession of 2009. Hence we are back to square one.

 

  • Andile Ntingi is the chief executive and co-founder of GetBiz, an e-procurement and tender notification service.

 

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