The analysis of youth unemployment in South Africa and the recommended remedial strategies.

Nwamichevhula boyoyo nwamankena

Table of contents
Page no. Abbreviations and Acronyms 1. Introduction 2. Background 3. Causes of youth unemployment: A Broad perspective 3.1Inequality and Poverty: The dreadful Apartheid legacy 3.2 The Supply of and demand for labour 3.3 Keynesian explanations and the problem of skills set (Human capital) 3.4 Other contributing causes 4. Policy intervention proposals 4.1 The NDP policy intervention strategies 4.1.1 Education, skills and innovation capacity 4.1.2 4.1.2 Economic growth, Policy considerations and institutions. 4.2 Other avenues 4.2.1 The youth wage subsidy 4.2.2 The global perspective 4.2.3 Miscellaneous 4.3 Criticism and shortfalls 4.3.1 The NDP 4.3.2 The Youth wage subsidy 5. Conclusion 6. Reference list 7. Appendix 1 8 10 11 4 2 2 3

Abbreviations and Acronyms GDP NDP IJR BBVA SA UN OECD COSATU SAIRR Stats SA EU HIV/AIDS Gross Domestic Product National Development Plan Institute for Justice and Reconciliation Banco Bilbao Vizcaya Argentaria (Spanish Bank) South Africa The United Nations Organisation for Economic cooperation and development The Congress of South African Trade Unions The South African Institute of race relations Statistics South Africa. The European Union Human Immunodeficiency Virus Acquired Immune Deficiency Syndrome. FDI CCMA Foreign Direct Investment Commission for Conciliation, Mediation and Arbitration

Every society, developed or developing, understands that its productive youth stock is by far its most valuable asset to have insofar as its sustainability is of concern. This concise, yet undeniable assertion is firmly displayed by the significance that the so-called baby boomers (born after World War 2 era in the US) had two decades after the war, wherein the US ushered into a period of undisturbed economic bliss (Drine, 2013). Or as seen in recent Spain where the burdensome threat of unemployment (46.1%) faced by the youth continues to spell a potential economic setback (BBVA, 2011:2). The Arab Spring of 2010 also lends weight to the notion of the importance and influences that the youth of a country have on the socio-economic fibre of society (Drine, 2013). 1. Introduction With a mere nineteen years into democracy, South Africa has for over a decade been grappling with a high unemployment rate, at an average of 25%, even more alarming, 51.5% for the youth as of December of 2012 (SAIRR, 2013:215 & 218). As was alluded to earlier the importance and influence of the youth cannot be stressed enough and a turn-around strategy that will veer South Africa in a better light is imperative to ward off this grim reality going forward. The objective of this paper is to systematically define the severity of unemployment amongst the youth of South Africa, provide fundamental causes for this problem and suggest most appropriate and relevant policy interventions as provided in the NDP document and other alternative strategies which could be exploited by policy-makers and the society at large. Furthermore, a thorough vetting of the proposed solutions will be done so as to ensure compatibility with the followed macroeconomic policy as well as a look at how South Africa compares with other countries and what our policy-makers can learn from them. In closing, by way of a concise conclusion, solutions that make for a better fit i.e. typically those with less costly trade-offs and compromises but substantial returns - will be given as suggested recommendations.

2. Background Stats SA (2001:16) defines the unemployed youth as the people within the age range of 15 to 24 which are economically active but did not work in the seven days prior to census night, those who wanted to work and were able to do so a week of census night or those who had taken the initiative to find work or had opted for self-employment in the period of a month - technically called strict definition. As things stand, the increase in unemployment rate between 1994 and 2012 has been 24.5% which is just shy of the current rate of 24.9% with 85.9% of that figure constituted by Africans (Blacks) and 70.7% being the youth (SAIRR, 2013:215). These figures lend weight to the view that youth unemployment is a problem worthy of attention and as was alluded to in the thesis statement,

it is imperative to fully understand the roots of the problem at hand. The following section delves deeper to anatomise the causes behind youth unemployment.

3. Causes of youth unemployment: Broad perspective It is the view shared by many researchers that youth unemployment is a multifaceted socioeconomic challenge whose causes can be ascribed to a score of factors including, but not limited to, economic growth and development, level of skills and education, and the dynamics of demand and supply of (skilled) labour amongst others (Harker, 1991:14-18; Keely, 2007; and Bhorat et, al: 2001). In the case of South Africa, in addition, the alarmingly high wealth disparities inherited from the Apartheid regime, and social exclusion and marginalisation en masse deepen the severity of youth unemployment and add to more polarised income differentials (Bhorat et al, 2001:2,21 -23). There is resonance in both Barker (2003: v & vi) and Turnham (1971:11) in their findings that there is a close relationship between changes in the labour market and the progress within the socioecono-political setting and thus this too should be afforded some attention, and lastly the impact of globalisation on the local labour market.

3.1 Inequality and Poverty: The dreadful Apartheid legacy The Gini coefficient for SA stood roughly at 57.8 as of 2012 which emphasises the wealth polarity that similarly translates to inequality in quality of education, skills acquisition, levels of poverty, occupational inequalities, and access to credit facilities in terms of entrepreneurship (BTI, 2012:2; & Barker, 2003: 278-280). Bhorat et al. (2001:3) argues that the institutionalisation of apartheid after 1948 was systematically spread over three areas, namely: the macro level, whose sole target was to create the marginalised homelands and industrial decentralisation. The meso level, aimed at separating race groups and the micro level meant to bring separation between individuals of different race groups through separate amenities (e.g. recreational public places, sports fields, etc.), prohibition of interracial marriages, etc. This institutionalisation was a precursor to the current high level of youth unemployment since it translates into the majority (blacks) being disadvantaged at almost any avenue that could be used to pursue a sustainable livelihood and it also explains why an estimated one third of all youth live in poverty (Trialogue, 2007). 3.2 The Supply of and demand for labour There is a grave mismatch between the supply of and the demand for labour in SA as can be seen in a decline in the labour absorption rate (SAIRR, 2013:216; & Barker, 2003:4). This by far seems to

be a more serious problem as Turnham (1971:64) and Barker (2003:4) add that this can be attributed to a number of candidate factors such a high population growth that SA experienced in the past two decades, increasing capital intensity (thus a replacement of labour-intensive jobs by capital-intensive ones) and increasing labour costs. One can further find causes of youth unemployment by exploiting the demand side of the labour market. As Barker (2003: 77-79) notes, derived demand for labour (demand whose extent is dictated by the demand of a service added by an employee) is indirectly affected by factors such as fiscal, monetary, domestic and even foreign policy state of affairs, since they impact on the demand for goods and services. In the case of direct impact, Barker (2003:82) holds that two factors in particular, the cost and the productivity of labour, influence the demand for labour. The low demand for labour is a result of low GDP growth and high unmatched supply (declining marginal return on labour). 3.3 Keynesian explanations and the problem of skills set (Human capital) According to the classical Keynesian theory, as Fourie & Burger (2011:484) illustrate, unemployment, due to the inherent unstable nature of the market economy, is an inevitable unpleasant heirloom. Given the frequency of these disturbances and their severity particularly in the context of a developing country like SA, the problem of price and wage rigidity is usually prevalent and on that score, a marked lack of sought-after skilled young people explains the severity of youth unemployment in SA. Together, the huge skills gap and the macroeconomic vulnerability abovementioned, reflect the ailing educational system, dearth of essential institutions and inefficient governance which calls for an urgent action (NDP, 2010:295) The root cause of this grim reality lies with what the OECD (quoted by Keely, 2007:29) defines as poor human capital, i.e. the knowledge, skills, competencies and attributes embodied in individuals that facilitate the creation of personal, social and economic well-being. Thus it follows that the vulnerability and proneness of the economy to downturns (as evidenced in the 1997/8 Asian crises, 2000 dot com bubble burst, the recent 2008 subprime mortgage crisis in the US and the Euro sovereign debt crisis) coupled with dwindling human and social capital is a significant candidate factor to a disturbingly high youth unemployment. 3.4 Other contributing causes Other ills of society that are entangling the youth of SA are endemic drug abuse, teenage pregnancy, high incarceration rates and HIV/AIDS (World youth report, 2003:99,116 & 148). 4. Policy intervention proposals The problem under discussion is too intricate and complex to be squared up by one policy or strategy and for this reason a couple of apt policy suggestions will be carefully vetted. 5

4.1 The NDP policy intervention strategies. 4.1.1 Education, skills and innovation capacity The NDP document proposes a myriad of strategic objectives aimed at an equal score of challenges. Improving on education, training and innovation comes out pivotal in addressing the depleting quality of the skills base, stark poverty, inequality and shrunk economic output (<3%, currently). Concisely, the NDP (2010:296-327) proposes a reform and restructuring of the education, training and innovative institutions by 2030 as follows: Standardise the guidelines, norms and standards for early childhood development programmes, and also Invest in training early childhood development practitioners. At primary level, address curriculum, incentives, and inclusivity and language issues. Introduce incentives to capture more top achieving candidates into the profession (teaching). At the post-school and transition phase, emphasis should be placed on creating the institutions for science, technology and innovation to develop intellectual capital and bolster economic growth. Provide for flexibility and innovation throughout the system by ascertaining funding for research-focused and entrepreneurship-oriented programmes. More importantly, generate more skilled labour that will appeal to the labour market and thereby improve the absorption rate of new graduates into industry. Develop and support a coordinated system for providing a diverse range of further education and training opportunities, through a range of state and private networks and partnerships programmes. 4.1.2 Economic growth, Policy considerations and institutions. Warding off poverty and inequality while ensuring faster inclusive growth is imperative for raising levels of employment in general and a couple of strategies as proposed in the NDP(2010:110 - 115) are as follows: Promote and Improve efficiency of exports (curb the resource curse by processing and exporting value-added products) Improve the perception of ease of doing business to enhance FDI inflow, invest in a competitive infrastructure and lower costs to encourage private investment. Improve on performance of the labour market thus reducing conflict and ease access to young, unskilled work-seekers. Strengthening the capacity of government to implement its macro-economic policy to ascertain stability and cushion off external shocks.

Work towards a more diversified economy reinvent agro-process, tourism, alternative energy and manufacturing industries. Strengthen the CCMA, the bargaining councils and the labour court. Improve employment equity and workplace opportunity to iron out inequality remnants of the past and unfair oversight of qualified and skilled labour. Inject support and funding to the mom and pop enterprises and expanding firms to accelerate job creation.

4.2 Other avenues There exist also a number of policy alternatives to strategies proposed in the NDP s conventional restructuring mode and some of these are rather discretionary. They are as follows. 4.2.1 The youth wage subsidy Submerged in a pool of controversy is the youth wage subsidy which promises a rather speedy and comprehensive address of the youth unemployment issue in SA (Blumenfeld, 2013:69). As laid out in research findings of the National treasury (2011:33) firstly, the subsidy compensates for the risky venture of hiring inexperienced young employees considering the paramount uncertainty pertaining the individual and also avoids erosion of either the employers profits or the employees disposable income. Also, to ensure productivity and to curb inefficiency there will be probation measures set in place to dismiss unproductive employees as an insurance to prevent a moral hazard situation (SALDRU, 2010:8). Secondly this firm-side subsidy would cushion against the costs that would have been incurred in skills development and productivity improvement of employees. This boost in equipping inexperienced young employees in firm-specific skills would hone the employability of these young individuals and as a positive spin-off raise their probability of future employment. Thirdly, this subsidy may serve as an encouragement to young employees to go out and actively search for work and therefore an incentive to be competitive (National treasury, 2011:33).

4.2.2 The global perspective The problem of increasing youth unemployment is not just a South African phenomenon but it is echoed even in some of the most developed countries in the world (Du Toit, 2003:15). Several strategies and policy interventions are applied to address this issue globally (Du Toit, 2003:16 -19)

examples of these policies include the Working Families Tax Credit program in the United Kingdom and the Self- Sufficiency Program in Canada, which targets parents with children. 4.2.3 Miscellaneous A renowned economist Chris Hart holds a rather unconventional view to what he points out as a reason for the high youth unemployment in SA, i.e. taxation policies, and not labour laws (GrantMakokera & Rantao, 2012). Lower effective taxes, according to Hart, can attract investment, bolster the creation jobs and ultimately raise sales and GDP. 4.3 Criticism and shortfalls 4.3.1 The NDP The NDP, with its almost impeccable well-planned framework, argues the IJR, has a rather simplistic, almost ideal take on the varied views of the youth (Business day, 2013). The IJR argues that with all the efforts to fix the education system there is a serious oversight over the labour market ills. Adding stock to that end, Dr Azar Jammine from Econometrix asserts that education often contributes to unemployment within the youth, arguing that the transition usually takes long and that structural differences are the prime causes of the mismatch gap. Also on the same side of the spectrum, the timeframe issue is the problem according to Kate Lefko-Everett from the Reconciliation barometer noting that, given the socio-economic challenges facing the nation and its growing pains with regard to tensions in issues such as ownership of the so-called commanding heights of the economy, erosion in basic developmental and societal institutions and so forth, the NDP presents rather an idealistic proposition.

4.3.2 The Youth wage subsidy COSATU (National treasury, 2011:37), among other critics, has an immense opposing voice with regard to the proposal of the wage subsidy, advocating that it would incentivise employers to hire the masses of inexperienced youth with a painful trade-off of senior current employee turnover, which does not cure the problem but merely transferring it.

5. Conclusion The sole, intended aim of this paper has been to provide fundamental causes for the high youth unemployment in SA, assess and analyse the viability of apt policy interventions and combative strategies in order to offer potent solutions and resolutions to the fore mentioned problem. Against the background of the thorough research included herein, the most important findings of the essay are of the notion that the NDPs suggested policy interventions, contrary to critics, would not only add positively to the economic growth but also it will address the grim three sisters of inequality, poverty and unemployment. Also, this sort of restructuring in terms of policies, institutions and overall capacity would mean long-term economic sustainability beyond 2030. The targeted wage subsidy policy would also be an appropriate short to medium-term strategy to the overwhelmingly high youth unemployment as projected. Furthermore, the benefits would dwarf the costs since it makes less business sense that firms would sacrifice their most experienced and most productive labour for some temporary financial fix. To that effect, this essay is in favour of both the targeted NDP policies and the wage subsidy.

6. Reference list

BARKER, F. 2003. The South African labour market, 4 ed. Pretoria: Van Schaik. 345p. KELLY, B. 2007. OECD Insights. Human capital How what you know shapes your life. Paris: OECD 147p. DESAI, A.S, HARKER, J., IKOKU, C., MOLOTO, P., MPOTOKWANE, L.M., POWER, P., SAMPSON, A., WILSON, F. 1991. Beyond apartheid Human resources in the new South Africa. 133p. FOURIE, F.C.V., & BURGER, P. Claremont: Juta. 541p. TURNHAM, D. 1971. The employment problem in less developed countries. A review of 2011. How to think and reason in macroeconomics. 3ed.

evidence. Paris: OECD. 153p. SOUTH AFRICA. Department of National Treasury. 2011. Confronting youth unemployment:

policy options for South Africa. - Discussion Paper. Pretoria: Government printer. 58p. BURNS. J, EDWARDS. L & PAUW. K. 2010. Wage subsidies to combat unemployment and

poverty: assessing South Africas options . A Southern Africa Labour and Development Research Unit Working Paper Number 45. Cape Town: SALDRU, University of Cape Town DU TOIT, R. 2003. Unemployed youth in South Africa: The distressed generation? Paper

presented at the Minnesota International Counseling Institute. p. 1 23. TRIAOGUE,J. (2007). Baseline review of private sector support of youth development..

Johannesburg: Umsobomvu Youth Fund. 40p. UN Department of Economic and Social Affairs. 2003. World Youth Report. New York: United nations. 429p. BERTELSMANN, S. 2012. BTI South Africa Country Report. Gtersloh: Bertelsmann Stiftung, 49p.

BBVA working paper. 2011. Youth unemployment in Spain: causes and solutions. 11 ed. Madrid: BBVA. 25p. 10

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2010. Department: The presidency. The national development plan. Executive

summary. Pretoria: Government press. 70p. Blumenfeld, J. 2013. Youth Unemployment in South Africa and the Wage Subsidy Debate. Focusstate and national. DRINE, M. 2013. The economics of 1960s. http://elcoushistory.tripod.com/economics1960.html

Date of access: 15 April 2013. GOKO, C. 2013. National Development Plan criticised for simplified view of SAs youth. Business Day: 21 Mar. http://www.bdlive.co.za/national/2013/03/21/national-development-plan-criticised-forsimplified-view-of-sas-youth Date of access: 10 April 2013. SAIRR. 2013. South Africa Survey 2012.

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7. Appendix FIGURE 1.1

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