We have to make unpopular choices on youth jobs – City Press, 1 October 2014

The release of a survey by Stats SA 10 days ago on skills acquisition by young people has again focused media and policy attention on South Africa’s labour market crisis – and particularly the extent to which young people are victims of that crisis.

Amazingly, and despite 20 years of empowerment policy, the report found that young, black South Africans had made little progress in filling skilled positions in the economy. The extent of black youth unemployment is simply extraordinary.

We estimate that there are 8 million people in South Africa who should be working, would probably want to work, but cannot find a job. Of those people, we estimate that 5.5 million of these are younger than 35.

On the expanded definition of unemployment (which includes people who have given up looking for work), the rate of unemployment for people younger than 35 is hovering at about 50%. For people younger than 24, that expanded rate is almost 70%.

A central problem confronting South Africa’s young people is that our primary and secondary industries are shedding jobs at an alarming rate.

These industries are very important as they represent the only realistic chance for relatively unskilled young people to find a permanent job in the formal sector.

Take a few examples. Over the decade to the end of last year, the number of people working in agriculture fell from 969 000 to 712 000, or by 27%.

The number working in mining fell from 488 000 to 374 000, or by 23%.

The number in manufacturing fell from 1 843 000 to 1 735 000, or by 6%.

The number of people working in private households, in other words domestic workers, fell from 1 188 000 to 1 093 000, or by 8%.

Jobs that were created were often in relatively highly skilled services sectors or in government. For example, the number of people working in the financial services industry increased from 1 134 000 to 1 818 000, or by almost 60%.

People working in “community and social services”, which includes government jobs, increased from 2 102 000 to 3 050 000, or by 45%.

Yet in a country where fewer than 10% of children will pass matric mathematics with a mark of 50%, the chances of finding work in the relatively high-skilled services economy are limited.

Similarly, the rate of job growth in the government is simply not sustainable and is placing immense strain on government finances.

What can be done? In City Press last week, Joel Netshitenzhe of the Mapungubwe Institute for Strategic Reflection, listed eight possible ideas ranging from better education to convincing businesses to hire more young people.

We can go along with some of these, like improved education. However, our experience in the current policy and economic climate is that the increased hiring of young people is simply not going to happen.

Rather, we suggest that the following two practical policy solutions are the only way to resolve the youth unemployment crisis.

First, South Africa’s long-term (five-decade) economic evolution is towards an increasingly high-skilled economy. So, without a commensurate improvement in education, it remains very unlikely that significant numbers of young people will find jobs in the formal economy.

The state has largely failed at school education.

Our proposal is that communities take ownership of schools through vouchers with which parents can enrol their children in schools of their choice.

This will create a market for education that will decrease costs and increase standards, while making teachers accountable to parents and communities. A recent policy paper to this effect can be read on our website.

Second, the decline of our primary and secondary industries is evidence of a declining economic competitiveness. Put bluntly, labour is too expensive and, therefore, relatively unproductive.

Until the skills base improves, which will not take less than two decades, South Africa needs to reduce the costs of employing relatively unskilled young people.

This means labour market deregulation and, specifically, the introduction of strike ballots, scrapping the horizontal application of bargaining council agreements and replacing minimum wage laws with a system of private voluntary contracts between employer and employee.

In other words, stop pricing the poor out of jobs and accept that a low-paid job is better than no job.

These are unpopular proposals in a country that prides itself on workers’ rights and the creation of “decent” (or high-paying) jobs.

However, if South African policy makers cannot take these difficult decisions, we must brace ourselves for the social and political consequences that will flow from denying young people access to the formal economy.

There is a strong lobby in South Africa that will reject our proposals in favour of greater state intervention and regulation of the economy.

However, our expectation is that such interventions will further deter investment and exacerbate the labour market crisis.

In an economy that is already failing to grow at even 2% of GDP, such interventions will amount to economic suicide.

The unhappy reality is that the extent of our youth unemployment crisis means that there are no popular policy choices left.

Cronje is CEO of the SA Institute of Race Relations.