SA's jobs crisis and its causes

Ann Bernstein says govt policy argues that no wage is better than a low wage

South Africa’s unemployment crisis is the deepest in the world and the forthcoming Jobs Summit needs to grapple with the scale, and horrendous consequences of mass unemployment. This is something that President Ramaphosa acknowledged earlier this year when he said that the summit “will need to take extraordinary measures to create jobs on a scale that we have never before seen in this country.”

He’s right about the need for extraordinary measures because the scale of the unemployment crisis is enormous. There are 37.8 million working age adults in South Africa today. Of these 11.9 million people (mostly students and learners) are not economically active. Of the remaining 25.9 million, 9.6 million (37%) cannot find work. That’s almost 2 adults in every 5. Put another way, only about 43% of South Africa’s adults work. In most countries, the figure is 60% or more.

And matters have gotten worse over time: between 2008 and 2018, the number of working age adults increased by 6.3 million but of these only 1.9 million (30%) found work, while 3.2 million (over 50%) joined the unemployment queues. That’s an increase of almost 900 unemployed people in the population every single day for over 10 years.

Matters are even worse for young people, where the unemployment rate is 50%, and where there are 400 000 fewer people in employment in 2018 than there were in 2008 despite the number of young people’s having increased by 2 million in that period.

The 9.6 million unemployed means that there are more people looking for work in SA than there are people living in 7 out of 9 provinces, and, if you wanted to reduce the unemployed by half, you would need to create industries that employ 11 times more people than are currently working in the entire mining sector.

The implications of all of this are devastating. SA’s mass unemployment is the key 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.

And yet there is nothing inevitable about SA’s scandalously high unemployment rate.

A key reason for the unemployment crisis is that policy makers have been driven by a set of ideas about employment and the labour market that are unsuited to the challenges we face. In essence, the 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 the kinds of jobs employers should be allowed to offer.

Effectively, government policy argues that no wage is better than a low wage. The country’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 America or the industrialising countries of Asia.

The ideological aversion to these jobs is disastrous, especially for unskilled and inexperienced work-seekers. It is also in direct contravention of the advice of many international experts, who, time and again, have said SA must create jobs for the many unskilled workers we actually have and not the skilled workforce we wish we had.

Compared with the alternatives most unemployed people have (rural or urban misery and hopelessness, dependence long into adulthood on support from parents and grandparents, a life of struggle in the informal sector, dominance of many women by fathers, brothers, husbands), working in a factory for low wages would be attractive to many hundreds of thousands of people. And, these basic jobs are not an endpoint, they can lead – as they have in almost every other country – to better jobs and other opportunities in time.

For those who have them, 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 must meet is that too few jobs are created.

One implication of recognising these challenges is that it shows up the inadequacy of job-creation projects that address only a small number of beneficiaries or which improve employment prospects only on the margin. Far too much energy by government, business and civil society goes into projects that help move some people into the employment queue but ignores the policy reforms that have to take place if SA is to reduce the length of work queues.

We all need to recognise that commercially viable firms are by far the most effective, sustainable and economically efficient job-creation projects, and we should do everything in our power to help remove the constraints on firms. The most critical of these are the rules that raise the costs of employment and those that make employers reluctant to employ more unskilled and inexperienced young people.

Too many of SA’s industrial sectors are marked by high levels of concentration, with a small number of dominant companies. However, this is less the result of anticompetitive practices by businesses (though, of course, this does happen), and more the consequence of policies that raise the cost of doing business to the point where only capital-intensive firms can thrive.

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

Creating an environment in which companies 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. And it is in light of this and President Ramaphosa’s call for “extraordinary measures that we need to ask critical questions about the Jobs Summit.

Will the Jobs Summit agreements respond to the scale of SA’s challenge of unemployment? Will they stimulate sustained economic growth? And do they create space for more firms to enter the economy and for existing firms to grow? Do the proposals shift the incentives firms face that discourage them from employing unskilled and inexperienced workers?

As it stands, there is little evidence that what is likely to be announced at the Jobs Summit will mark a decisive change in policy direction of the kind we need to start moving the dial on unemployment.

That would be a wasted opportunity. If this is correct, then, it will be important to ask a final question of the agreements. Do they open up space for further engagement on the deeper, more fundamental policy questions, or do they leave policy-makers and stake-holders feeling like they have done their jobs and that they can close the book on this critical issue? If it is the former, the Jobs Summit will be a step towards the reforms the country urgently requires and perhaps as much as can reasonably be expected in our strained political circumstances. If it is the latter, however, the summit will be a real disappointment.

SA has to change direction and find a new growth path that accelerates labour intensive economic activity. Unless core policies are revisited and soon, yet another generation will grow up in a world of mass unemployment and hopelessness.

Ann Bernstein is executive director of the Centre for Development and Enterprise.