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SA's unemployment crisis - it's a policy problem first and foremost

Aug 18 2019 18:45
David Ansara and Hermann Pretorius

South Africa is in the grip of an unemployment crisis. The latest unemployment figures from Statistics South Africa show that the official unemployment rate has increased to 29% in 2Q 2019 (a QOQ rise of 1.4% from 27.6% in 1Q 2019).

This represents the highest unemployment rate since 2003. The expanded unemployment rate, which includes those who have given up looking for work, now sits at 38.5% or 10.2 million people (the highest number ever in absolute terms).

Among young people, the unemployment rate is even worse. Some 56.4% of 15- to 24-year-olds and 35.6% of 25 to 34-year-olds are unemployed, as per the official definition of unemployment (apply the expanded definition, and this rate rises to 68,3% and 45,1% respectively).

As we argue in a recent CRA report, the largest pool of potential human capital is also the segment with the highest unemployment.

Earlier this month, President Cyril Ramaphosa acknowledged the extent of the current crisis. He said:

"[We] have to be innovative and combine that with our willingness to be as creative as possible. We are essentially in a deep and serious crisis and we should never rest if so many of our compatriots are out of work."

Low growth not the only problem

Why is SA’s labour market shedding jobs?

The primary reason is low economic growth. Our analysis reveals a close relationship between growth and job creation. Significant reductions in unemployment were seen between 2004 and 2006, when South Africa's real GDP growth rate averaged around 5% for the three consecutive years. At the time, unemployment stood at around 23%. Conversely, growth rates of 0.7% in 2018, and 0% year-on-year and -3.2% QOQ in 1Q 2019 correlate with widespread job losses. The notion of "jobless growth" is not supported by evidence.

A second, related, cause is the broader economic policy framework that is hostile to business and investment. To take but one example, the Mining Charter has stifled new investment in the mining sector. While mining accounted for approximately 427 000 formal jobs in 2018, that figure had dropped to 376 000 jobs by 2019 (a decline of 11.9% or 51 000). Policies such as Expropriation Without Compensation and the National Health Insurance fund represent further potential challenges to the private sector.

Third, poor education and low skills levels are a critical point of weakness in the labour market. This means that young people entering the job market are ill-equipped to meet the demands of a services-orientated economy. Unskilled South African workers risk being left behind as the Fourth Industrial Revolution disrupts labour markets around the world.

The fourth factor is labour policy itself. SA’s deep structural unemployment cannot be attributed to a single piece of legislation or regulation alone. Underpinning all labour policy is the concept of 'decent work', which implies that low-wage employers are inherently exploitative. SA’s emerging market competitors, such as Vietnam and Ethiopia, have taken a different approach, preferring low-wage employment to mass unemployment. South Africa should follow suit.

The new National Minimum Wage, which came into effect in January 2019, requires employers to pay R20 per hour or R3 500 per month. The full effects of this policy are yet to be borne out, but its implementation potentially prices millions of low wage workers out of the market. Tellingly, employees of the government’s own Expanded Public Works Programme are exempted from the National Minimum Wage, receiving R11 per hour.

Everyone should have the right to work and the right to sell their services on terms that they agree. The answer is to give an unemployed person back their right to contract at conditions acceptable to them.

Our judgement is that new minimum wage policy, political messaging on decent work, and the advance of technological innovation will deter the employment of younger and less experienced people to a greater extent than ever before. The entire policy framework is misaligned, requiring much "creativity" on behalf of the president and his advisors to address the crisis.

David Ansara is the Chief Operating Officer of the Centre For Risk Analysis (CRA). Hermann Pretorius is an analyst at the CRA. This article is adapted from the CRA’s monthly report, the Macro Review. Views expressed are their own.

jobs  |  economy  |  economic policy  |  growth
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