SOUTH AFRICA HAS A JOBLESSNESS CRISIS: FIXING IT WILL TAKE FRESH THINKING TO FIND A GAME-CHANGER

Sat 20 July 2024:

Everyone agrees that solving the unemployment problem in South Africa is the number one priority for economic policy for the new government, as it has been for all governments since 1994. What is less clear, and highly contested, is what should be done to solve this problem.

It’s worth starting by acknowledging that the problem is complex and there are no easy solutions. It is important to understand why unemployment is such a vexed problem, why it has remained a feature of the post-apartheid labour market, why some parts of the problem are found in other countries and why others are unique to South Africa. And how solving unemployment may be related to wider economic policies.

But address it South Africa must – because it’s the primary driver of inequality, a root cause of other social and economic problems, and a massive waste of human resources.

The official unemployment rate is 32.9%. If discouraged workers are included (people who have given up trying to find jobs), the unemployment rate is 41.9%. For young people, aged 15-24, the unemployment rate is 59.7%. If discouraged workers are included, about 11.2 million South Africans are unemployed.

Seriously tackling unemployment requires being clear about a few things.

First, it’s important to understand why unemployment in South Africa is so high. There are two main sets of issues – some global (such as changing employment patterns), and some specific to South Africa (such as the legacy left by the country’s apartheid past.)

What I conclude is that addressing South Africa’s unemployment challenge requires some new thinking and an acknowledgement that policies that seek to deregulate the labour market are no solution.

South Africa requires policies to increase the demand for labour – that means finding a new growth trajectory that is employment intensive. These could involve much greater public investment in rural areas and townships – addressing backlogs in infrastructure like transport that is important for linking people to markets – as well as promoting the informal economy and small businesses.

The country also needs a game-changer to get the economy onto a labour absorbing path. One possibility is fighting climate change. South Africa has a high natural advantage in the production of solar and wind renewable energy. More investment in renewables and the related manufacturing and services activities which go into the production of clean energy and which require clean energy as a key input has the potential to shift the economy in a way that generates employment.

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The drivers of unemployment

Two global issues driving unemployment are important.

First, across the world, for much of the last three decades, technology has been changing at a rapid pace – computer technologies were followed by digital technologies and then artificial intelligence.

Technological change has had a significant impact on jobs. In net terms, it has reduced the number of jobs and wages, especially for low-skill occupations, and increased incomes for high-skill occupations.

Second, China’s incorporation into global production systems has had large effects on employment across the world. Harvard economist Richard Freeman has called this the “great doubling” of the global labour force. The result has been that production has moved to China, and reduced employment elsewhere.

The key South African issues are also twofold.

First is the distorting impact of apartheid on the labour system. There are three effects worth mentioning:

One of the most deleterious effects was that most Black women were not allowed to live in the cities, and therefore could not work for wages. Under apartheid, most of these women were classified as “economically inactive” and therefore not in the labour market. With the end of apartheid, there was a large increase in women migrating into the urban cities. In the post-apartheid period, these women were enumerated as economically active and since most were unable to find work, they swelled the ranks of workers classified as unemployed. This led to a large increase in the official unemployment rate, although many of those women were unemployed in the previous period – they were just not classified as such. Daniela Casale and Dori Posel have done excellent research on this issue.
As highlighted by the South African sociologist Harold Wolpe, the homelands and rural areas served essentially as spaces for women, children and retired men to live in, without any serious productive economic activity in these areas. Homelands were rural areas the apartheid government demarcated for black people to live in. This stripped them of any rights to live in, or work without a special pass in, what the government declared were “whites only” areas which made up 87% of the country.
The apartheid state crushed much of the entrepreneurial activity among Black South Africans to force African men to migrate to work in the mining industry. This was researched exhaustively by, among others, the South African historian Colin Bundy.

The second national issue affecting the job market is that while employment has risen and new jobs have been created, the size of the labour force is increasing at a faster rate than the net number of new jobs created.

What won’t work

So what’s the solution?

One argument put forward is that the South African labour market is over-regulated. That there is too much protection for workers, and wage levels are too high for employers.

An additional argument is that workers’ skills do not match what is needed by employers.

All of these see the problem on the supply side of the labour market. That is, unemployment is caused by workers expecting a wage that is too high, not having the right skills, or expecting too much protection.

Proponents of this view argue that reducing protection and reducing wages will allow the labour market to clear and unemployment will fall.

There are a number of reasons why such a strategy will not work.

First, it ignores the country’s history and trends. Second, depressing wages is not politically feasible and will lead to growing inequality in South Africa. Third, it underplays the key issue: the economy, even when it is growing, is generating fewer jobs than the increase in the labour force.

Some solutions

So, what might be a policy package that could address unemployment in South Africa?

The economy has to shift to a growth pattern that increases the demand for labour. Some elements of this would include:

Much greater public investment in rural areas and townships, to generate better economic integration in these areas, and boost the demand for labour. Examples of this include investment in transport systems, telecommunications, systems that promote exports.
More accommodating macroeconomic policies – essentially, public expenditure and taxation and monetary policy such as interest rate policies – that promote employment-intensive growth. South Africa’s monetary policies have focused on reducing inflation, through high interest rates. High interest rates might attract capital to South Africa, but they do very little to encourage firms to invest in production and related activity, which creates jobs. The country’s macro policies should be focused more on promoting investment by firms to generate employment. This is not to suggest that inflation control is not important, but a better focus on employment is also needed.
South Africa’s informal economy is small compared to its peers. Policies for greater public investment in marginalised areas will boost informal work opportunities.
More investment in renewables and related production which requires clean energy, to take advantage of the country’s high natural advantages. There are two components to this – manufacturing all the inputs for rolling out renewables and also using clean energy to produce goods that are classified as “green goods”.

This is the game-changer that could change the trajectory of South Africa’s economy.

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