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How to fix South Africa’s unemployment crisis

BUSINESS TECH / 30 JANUARY 2020 - 14.57 / STAFF REPORTER

The Centre for Development and Enterprise (CDE) has published a new report looking at South Africa’s growing unemployment rate and what it calls a ‘job bloodbath’.

The think tank says that South Africa has one of the deepest and most persistent unemployment crisis in the world, with the situation worsening due to slow economic growth and labour market policies that discourage employers from hiring unskilled workers.

The CDE – using data from StatsSA, the World Bank, the Reserve Bank and other sources – said that only 42% of adult South Africans actually work, and this figure has continued to slide, now down from 46% in 2008.

Of the potential workforce, over 38.5% is unemployed, it said – far higher than the ‘official’ unemployment rate published by Stats SA, which stood at 29.1% near the end of 2019.

“Between 2008 and 2019 the number of people who want work but cannot find it or have given up looking rose from 6.5 million to 10.3 million. Every day some 1,700 adults join the labour market and fewer than 500 of them find work,” the CDE said. This is roughly 3 in every 10.

“The situation for young people (aged 15-34) is even worse. Between 2008 and 2019 the population of young people increased by 2.2 million but the number employed fell by more than 500,000.”

“This problem has been exacerbated by years of neglect and inappropriate policies,” said CDE executive director Ann Bernstein.

“But all is not lost. We could make significant progress in stimulating growth and increasing employment if government were to adopt a package of realistic policies.”

Official unemployment rate

South Africa’s official unemployment rate climbed to 29.1% in the third quarter of 2019 – its highest rate in over 16 years. The country’s unemployment rate last reached 28% in 2003.

The working-age population increased by 149,000 or 0.4% in the third quarter of 2019 compared to the second quarter of the same year. Compared to Q3: 2018, the working-age population increased by 597,000 or 1.6%.

The number of employed persons increased by 62,000 to 16.4 million in Q3: 2019, but the number of unemployed persons also increased by 78,000 to 6.7 million compared to Q2: 2019, resulting in an increase of 141,000 in the number of people in the labour force.

Reforms

Bernstein said that key to South Africa’s jobs turnaround in introducing a number of structural reforms and restarting the country’s growth.

“It is widely recognised that unemployment is high because economic growth is low,” she said.

“This is largely because governance has been so poor. Before 1994, apartheid was to blame; after 2008, state capture, increased antagonism towards business and widespread corruption precipitated a near-fatal collapse of governance.”

Bernstein said that three other factors are especially important: South Africa’s multi-generational failure to educate its workforce; the spatial legacy of apartheid which imprisoned many in poverty traps and retarded urban growth; and many bad policy choices in the last two decades.

Bernstein said that reforms should include:

  • Securing more generating capacity;

  • Putting South Africa’s finances on a sustainable footing;

  • Tackling the skills crisis through fundamental reform of basic education and training;

  • Encouraging as much skilled immigration as we can attract.

Policies that undermine property rights must also be rolled back, while the government will have to rethink its attitude to business, the role of markets and the size of the state, she said.

However, Bernstein cautioned that growth alone will not make for a job-rich economy and that labour market reforms are also urgent.

The best route to an inclusive society and less poverty is to get as many people as possible into formal jobs, she said.

Bernstein said that the reforms that would achieve this include:

  • Legal exemptions for small and new firms from collective bargaining agreements to which they are not party;

  • Rebalancing collective bargaining to ensure small and new firms are better represented;

  • The existing biases of industrial policy – which work in favour of capital-intensive firms – should be reversed;

  • the employment tax incentive should be expanded to include more workers and for a longer period;

  • Making it easier for firms to get rid of employees during their probationary periods would help de-risk the employment decision.

“It’s time South Africa got serious about this devastating crisis,” said Bernstein.

“Tweaking around the edges of difficult issues or avoiding them will not result in faster growth or more employment.”

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LINK : https://businesstech.co.za/news/business/369204/how-to-fix-south-africas-unemployment-crisis/

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