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NEWLY LAUNCHED EMPLOYMENT INDEX TO FOCUS ON HUMAN CAPITAL FORMATION

Schalk Burger | 22 May 2023


Trade union UASA and the Bureau of Market Research (BMR) have launched the UASA/BMR Employment Index, which tracks the employment performance of the economy and will be updated quarterly.


The index tracks production elasticity of employment as an indicator of the strength of the relationship between gross domestic product (GDP) growth and employment creation, and the quality of labour supply to provide an indication of the growth in the value of human capital in the economically active population, among other subindices.


The launch, alongside the release of UASA's 'South African Employment Report 2023', is part of UASA's new paradigm strategy, which is aimed at shifting the focus of employment creation from a focus on GDP growth to a focus on human capital.


"South Africa is locked in a low-growth path, including lower income growth and fewer jobs created, and is locking the economy to a lower-growth pattern over time as the number of challenges that pull down the economy increases," said BMR research director Professor Carel van Aardt.


The majority of South Africa's economically active population do not have the skills to meet the labour demand, which is clear from the proportions of skilled people and those in employment.


People with a matric qualification achieved a labour absorption rate of 42.8%, while those with certificates and diplomas achieved an absorption rate of 65.2%, and those with degrees had a 73.6% absorption rate.


Another price that South Africa paid for not creating enough jobs was that the unemployment rate and levels of inequality and poverty kept increasing, Van Aardt emphasised.


However, South Africa is not unique in the challenges it faces in terms of low employment growth, and there are many countries facing similar problems, including in South East Asia.


Some managed to overcome the challenge while others, including South Africa, continue to face low employment growth and high unemployment.


Various international economists, including renowned US economist Jeffrey Sachs, have found that there was a marked difference in employment creation between developing countries that focused on higher levels of economic growth to achieve higher job creation and countries that adopted flexible labour market policies, which encouraged employers to prefer labour above capital investments, highlighted Van Aardt.


Developing countries that adopted flexible labour market policies halved poverty between 2010 and 2019, while those that relied on higher economic growth did not see a similar reduction in poverty.


South Africa's GDP growth levels recovered after the 2008 recession, and should have led to a matching pattern in employment growth. However, following difficult times, employers were hesitant to hire new people and invested instead in capital goods before hiring more people, he illustrated.


This trend has continued for a long time, albeit with some growth in employment rates, until Covid-19 spread across the world.


"South Africa requires a new paradigm when developing policies for its labour market. We cannot do the same things and expect a different outcome. Therefore, UASA has launched its new employment paradigm," said UASA president Patience Mapitsi on May 19.


South Africa could use international best practices to inform its new labour market paradigm, said Van Aardt.


Human capital formation emerged as an important element of employment growth, he emphasised.


This can be seen in South Africa where there is a moderate mismatch in skills and employment, with some people with higher qualification levels doing less skilled jobs, sometimes with the intention of it being a temporary measure, but also because of the lack of people able to enter the labour market.


Conversely, there is also a proportion of people who lack appropriate qualifications but who are employed in skilled positions, with research indicating that employers consider them to have the skills that the company requires.


"These people had developed their own skills independently," Van Aardt noted.


Therefore, enabling people to take responsibility for their own futures is important to encourage employment growth. This requires opening access to education.


Some countries made education free up to degree level, he said.


Other countries, such as Germany, took a different approach. Some German companies have offered employees the opportunity to study further rather than take a pay increase, which eventually led to those that increased their skills increasing their income much more and faster than if they had relied on income growth.


"When we bring these concepts together, we get to the new paradigm. We must be focused on strengthening human and social capital, not economic growth, to strengthen employment growth.


"We must focus on absorbing the unemployed to reduce poverty and distribute income. This can only be done by focusing on people."


Further, demand in the labour market is out of synchronisation with labour supply, and there is an oversupply of lower skilled labour who do not have the skills to enter the labour market.


"There must be a funnelling of the types of skills required in the economy from education to industry. However, labour demand continuously changes and, instead of teaching knowledge, we must teach our people to be better thinkers and to be more self-sufficient in gaining the skills they need to do the jobs they prefer.


"Government's role must change from an enforcer to an enabler, and it should provide assistance to ensure people can acquire more skills and the labour market evolves to become more flexible to support more business startups in a less rigid environment," said Van Aardt.


If there were sufficient skills in the labour market, this would encourage more employers to employ people, he added.


However, he emphasised that a flexible labour market policy to stimulate employment creation included labour protection and employment equity as non-negotiables.


"Protecting employee rights remains absolutely necessary to sustainable employment growth," he said.


‘Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER’.



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