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Will SA ever be able to solve its unemployment problem?

We cannot create jobs fast enough for all the new entrants into the labour force.
An increase in skilled immigration would boost the economy and job creation. Image: Waldo Swiegers/Bloomberg

Statistics SA announced the bad news a few weeks ago that unemployment in South Africa increased to 43.2% in the first quarter of the year, but the problem is much worse when one looks at the real number of unemployed persons and compares it with economic growth.

The figures show that unemployment in SA has been getting steadily worse over the long term. Stats SA counted 6.4 million unemployed persons in SA March 2008. According to the latest Quarterly Labour Force Survey (QLFS) there are now more than 11.4 million. That’s an increase of 77%.

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The working age population increased by 30% from 20.9 million to 26.4 million over the same period as SA’s young population reaches employment age, but the number of jobs increased by less than 3.9% – from 14.4 million in 2008 to just below 15 million in 2021.

The figures suggest that our economy added only 600 000 jobs over the last 12 years, compared to the increase of more than five million in the number of work seekers.

Comparing the employment rate (simply the inverse of the unemployment rate) with actual GDP shows that employment fell during the 2008 global financial crisis and never really recovered relative to the size of the labour force. Covid-19 dealt employment another blow.

Employment versus real GDP

Source: Figures from Stats SA

Izak Odendaal, investment strategist at Old Mutual Wealth, says SA did win back the jobs lost in 2008.

“Looking at the QLFS, SA lost about a million jobs in the wake of the global financial crisis, but had regained these by 2021. Employment then grew fairly steadily until the Covid-19 crisis when employment fell about 1.4 million.

“Employment has improved somewhat from the low point in the second quarter of 2020 when the economy was in hard lockdown, but clearly is still well below pre-pandemic levels. This does reflect the fact that certain sectors are not yet at full capacity, such as tourism and leisure that are very labour intensive.

“The problem is not that SA cannot create jobs, but that we cannot create jobs fast enough to absorb new entrants to the labour force,” says Odendaal.

Employment lags growth

He points out that employment tends to lag GDP. In a downturn, employers don’t immediately retrench; they use retrenchment only as a last resort. In an upswing, businesses don’t immediately add jobs because they are unsure that the upswing will last and they don’t want to be stuck with unnecessary workers on their payroll.

“This is especially true in SA where labour laws make it difficult to retrench people or hire workers only part time,” says Odendaal.

Koketso Mano, economist at FNB, says that any crisis often has a lasting impact on the economy.

It is clear from the figures that employment losses during the global financial crisis and Covid-19 shocks have been more pronounced than output losses.

“Even as employment growth tracks economic growth, we should expect some permanent losses in in both, with employment suffering the most. In addition, population growth does not necessarily contract during a recession.

“When the economy contracted by 1.5% in 2009, the working-age population grew 1.9%. Between 2010 and 2019, working-age population growth has averaged 1.8% and employment increased 1.4%, but employment losses of 7.9% in 2020 were coupled with 1.5% working-age population growth,” says Mano.

He says that while employment growth does follow GDP growth, most work-seekers still end up unemployed or discouraged. “This reflects structural labour issues, such as a skills mismatch, which causes persistent disequilibrium in the labour market,” says Mano.

In short, the figures show that the population has been growing much faster than the economy for decades, while the nature of economic production has evolved in ways that use less labour.

Labour force compared to number of employed persons

Source: Based on Stats SA data

Solutions are difficult

There isn’t an easy solution, says Mano, indicating that SA should get used to an unemployment rate of 25% – leaving one in four would-be workers without an income.

“SA has had periods of robust economic growth, but unemployment levels have remained elevated. Estimates of the natural rate of unemployment are around 25%,” says Mano.

That translates to a ‘normal’ situation where SA will have at least five million unemployed and unemployable people – forever.

Mano lists a few measures that would help to create employment:

  • Robust economic growth with the assistance of strong structural reforms,
  • Further support for inexperienced workers through contractual and lower-wage employment,
  • Reskilling of workers and ensuring that the labour force is better prepared for an evolving global economy,
  • Growing and strengthening of the informal market and township economies, enabling them to provide more employment opportunities, and
  • Improving the ease of conducting business as well as support for novice entrepreneurs, especially small, medium and micro-sized enterprises (SMMEs), which tend to be labour-intensive.

Odendaal says SA needs faster economic growth, which in turn requires a whole bunch of other things, including investing in infrastructure, reducing red tape, policy certainty and better service delivery.

“But economic growth by itself is not enough, we need growth that absorbs unskilled workers and some sectors are better than others [agriculture, tourism, construction]. There isn’t a single solution, he says.

His list of interventions includes changes to:

  • The way we educate young people,
  • The way companies hire (you can’t get a job without experience, and you can’t get experience without a job),
  • Labour laws that are discouraging employment,
  • Urban transport costs that make working expensive and looking for work even more expensive, and
  • Policies that tend to encourage capital intensity over labour intensity.

Employers often have a different take on employment. While agreeing that labour laws are too restrictive, they also say that skilled workers are scarce and that SA’s education system is not producing employable workers.

Figures seem to bear this out. Unemployment among younger people is higher than for slightly older persons, while unemployment is much higher among unskilled workers than those with better skills, training or work experience.

Mano points out that the unemployment rate for graduates aged between 15 and 24 is 40%, much higher than the 16% for those aged 25 to 34.

“People have acquired more skills, but issues around experience and skill choice would dictate how valuable these added skills are. The type of skill a student chooses to acquire can also affect their employability, in line with demand for that skill in the labour market.

“Graduates have a higher probability of being employed, but many remain unemployed and it could be because of a lack of experience or limited demand for a particular skill,” says Mano.

Demographics play a role. “For now, these demographics [a young population] exacerbate issues related to experience and how it affects the ability of youth to secure employment.”

Immigration might also play a role, but Odendaal says it is difficult to comment on the effect of immigration without accurate data.

“SA makes it relatively easy for unskilled immigrants, and very difficult for skilled immigrants to work here. More skilled immigration would be a boost to the economy and job creation,” he says.

Okun’s solution

Yale economist Arthur Okun studied the relationship between a country’s unemployment rate and its economic growth rate in the 1960s, concluding that an economy must grow two percentage points faster per annum than its potential GDP growth to reduce unemployment by one percentage point.

SA’s potential GDP growth rate is often quoted as 3.5%, meaning that unemployment will fall one percentage point for every year that the GDP grows by 5.5%.

If this holds true, a very rough calculation shows that we need 5.5% growth every year for the next 18 years or so to reduce the unemployment rate to the ‘normal’ level of 25% quoted above. We probably need even more growth to account for population growth.

Read: Granular understanding of joblessness in South Africa can help pinpoint policies

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Strange that birth control is never mentioned. If we have too many entrants into the labor market then we have too many people?

Absolutely. It’s not that the unemployment rate is 40%, it’s that there are 40% more people than the economy can realistically support.

If Government keeps its nose out of the economy then the economy will prosper.

Less government interference = more jobs

Less regulations, less protections except for tariffs on Chinese cheap imports.

Remove the Road accident fund, remove corruptions and South Africa will prosper.

Bring back the Tax payer money in Pakistani and Dubai banks.

Breed what you can feed.

Surely a slower population growth might help in reducing unemployment.In a superficial, shortsighted way it might seem that bithcontrol is the way to go.The whole idea of a kind of state sanctioned authoritarian birth control has not worked anywhere, not even in a very controlled place as China.
https://www.hli.org/2021/06/birth-rates-are-plummeting-in-china-and-the-u-s/
It is well know from the last 50 years in Africa that when people are getting more educated, moving up the social and economic ladder, enter the middle class as civil servants, nurses, teachers, artisans and the like they automatically choose for smaller families. Probably having become aware of the enormous time and financial burden of raising, feeding and educating kids.
So it might actually be much wiser to concentrate on good education and economic growth, then indirectly birth rates will drop.
But as another comment mentions, an economic boom might also attract immigration.

Since apparently calling out implied racism in other comments is offensive to the editor, I will have to settle for giving approval to good comments instead.

I think you hit the nail on the head. Forced population control has never really worked. Even worse, unintended side effects spring up as a result of artificially trying to control birthrates with countries like China now having serious gender ratio issues.

Far better to address serious socio-economic concerns like lack of quality public education as these will have the added benefit of helping lower birthrates in the long run as has happened everywhere else in the world.

You are so right. In the early 1900’s to the 1950’s the norm for poor whites was to have 8-12 children per family. When NP took over their drive to educate and the drive to get investments from abroad and expanding the SOE’s most of the poor whites became middle class. You seldom see white couples with more than 3 children these days.

The ruling party has a condundrum exceeding their mental capacity here. They need to perpetually cultivate new voters through the child grant system but the same program is what causes the oversupply of unschooled labour.

The ANC will have to solve its ideological problem first!!!

Short answer is no, UBI is an undeniable future.

Longer answer is even if they find employment they will still never earn enough to join the middle class or spend a meaningful amount

Will SA ever be able to solve its cANCer problem?

Interesting article, but still leaves many aspects untouched. Not only do we need a more educated workforce, but most of all we need more flexible, committed employees. The trade unions and the ANC have brought up a completely spoilt rotten populace that can mostly demand, protest but not so much produce.
Salaries have risen so much, especially in the public sector that it has made the whole SA economy uncompetitive. Although one cannot take the human, social aspect out of labour, one surely cannot disregard that labour in free market economy terms is just a factor, often a burden to produce competitive products or services.
SA has long priced itself out of the market with an expensive, half educated, not that productive labour force. About the only one who has dared to call a spade a spade in this respect, is Ann Bernstein of the CDE, the Centre for Democracy and Enterprise. She once mentioned years back that we rather should lower minimum wages to create employment in labour intensive sectors as manufacturing, mining and agriculture. All parts of the economy that have massively shed jobs over the last 27 years.
Oh my dear, we would be greatly helped if we could listen more to economist Mike Schussler and Brave Bernstein.
We truly need a massive brainwash, change of mindset and culture to bring around a more competitive, growing economy that will produce wealth for the majority and jobs.
Instead we have a min of labour,that one of the dark, deep voice defending the Nkandla firepool, who announces a considerable rise in minimum wages amid a pandemic and an economic crisis.
Only in Mzansi.
Totally clueless, pathetic, spineless Prez CR talks about a new app and other nitty gritty stuff to assist youth in finding jobs and upgrade skills on the recent Youth Day.
Totally bypassing the major, fundamental changes that are needed to bring the SA economy on course.
Reducing the culture of entitlement, liberalising labour legislation, serious govt austerity.
SA suffers from serious TEID, Total Economic Ignorance and Denialism.

Employers are entrepreneurs and they will only hire someone if that person can add value to the enterprise. A factory or household will definitely employ a factory worker, domestic worker, and gardener if that leaves the employer free to do more important and more profitable work. This is the nature of the free market. If you can add value there is a place for you to add value to your own situation.

That brings us to the root of the South African unemployment disaster. The combination of stringent labour laws, militant unions with way too much power, destructive rights to strike, picket and intimidate, and the minimum wage and high wage demands create a labour force that destroys value.

The entrepreneur needs people to take his business forward and to add value, but the ANC provides only value-destroying labour. The entrepreneur protects his own interests by not employing the products of ANC policies. Therefore, the ANC creates unemployment.

Good Comment – Unfortunately this downward trend has to continue as our country is still adjusting to the regional norm. This is a continental problem not just a SA problem. Just imagine (in dreamland) if tomorrow our GDP per capita was double what it is now, unemployment at the 10%, Rand at 10/$, only 5 million on social grants. What would happen? Our population would rapidly soar to over 100 million as migrants from our immediate neighbours and the rest of Africa, just looking for a better life, flood into the country – unemployment would rise, rand would fall etc. In short we would become the victims of our own successes and we would end up right back where we started. In order to maintain the status quo we need be on the same level as our peers (Sub-Saharan Africa).This level is very low. To improve our situation will be impossible without improving the situations in our neighbours and this has little chance of ever happening until our African leaders keep acting like kleptomaniac warlords.

NO they are creating under-educated (being nice) people who cannot cope with the tasks at hand in the employed field.

Not without birth control clinics at every corner….

As long as we have to deal with AA and BBBEE, no!

Get rid of red tape in business.

Small enterprises should be allowed to hire and fire at will. No union involvement must be allowed for people working for a small/medium enterprise.

Also fix the school system, encourage people to attempt tertiary education. They don’t necessarily have to go to University for a tertiary education. Qualifying in a trade is also a tertiary education.

The proof is there that people with a tertiary education have a much better chance of being employed than otherwise.

In 2016 Julius urged his supporters to have many babies. As have politicians many times in the past as well. So there is your answer – No.

Unemployment is mainly a problem for socialist politicians that is caused by socialist politicians.

When the highly efficient and proven market mechanism is not allowed to operate, when the market is not allowed to clear, so to speak, it will result in either an oversupply or shortages of products and services. The ANC is “hoarding” jobs because they prevent the unemployed from selling their labour at the current market rate. Mugabe tried to manipulate the retail price of bread and the shelves ran empty at the official price but behind the counter, fresh bread was available at three times the official price.

We don’t have an unemployment problem, we have a problematic central planning government that intervenes to price labour out of the market. We have an oversupply at the official rate while there is ample demand. Scrap the minimum wage and the market will clear at a wage that is negotiated between the employer and the employee. On behalf of the starving unemployed, the ANC decides that it is better to starve than to accept anything below the minimum wage. What is the value of freedom when an individual is not allowed to negotiate the value of his own time and labour?

The product is overpriced at the minimum wage because there are some serious and dangerous flaws in this product. The labour laws trigger militant strike action immediately after you have purchased the product. The inclination of this product to steal and destroy property is problematic. The level of skills and education necessitates long periods of intense training that adds to the cost of the product. After you have purchased the product you have to rebuild the entire product from scratch. The proponents for the minimum wage do not consider these extra cost factors for the employer.

The product should be discounted to clear the market and then employers will grade the products and train those who show potential to pay them a higher wage and discard the rest who will surely find employment as socialist politicians at ten thousand times the minimum wage.

Over decades, the country has created more people than the economy can carry.

The unemployment numbers reflect formal, second world jobs only. The mainstream economists keeping looking at the economy through a second world lens, whilst we live in a +-70% third world country. A rethink is required.

It can be done, but the country needs align its laws and governance strictly along the lines of free market principles. It is the only way to increase the income of the country and achieve full employment. Unemployment is a manifestation of the socialist inspired political ideology of the ANC and its socialist inspired partners. Market reforms would include growth enhancing reforms such as far lower taxation to thereby increase savings rate and starve the government of capital, softening of labour laws (including removal of BEE), removal of all capital controls, removal of legislation that interferes with the efficient functioning of the private sector, protection of individual & property rights, removal of all incentive schemes, special protections, etc. When all is said and done, unemployment problem in SA is a political one. From a practical perspective, full employment is most definitely achievable within 20 years.

This article once again the sheer general cowardice, or wilful evasion – call it what you will = of Economists in deliberately refraining from drawing ANY attention whatsoever to the “problem” of an out of control population growth that CANNOT – and will NEVER – be able to be fixed UNTIL it is ADMITTED TO as being the CORE of this country’s economic AND social problems.

If the technical “experts” (hah!) in this field positively REFUSE to draw attention to this existential problem to this country’s future success, then why should the media, let alone the real world change-agents (yep, that’s the prime role of the politicians!), pay any attention?

Our excess population growth has TWO problems rolled into one: Not only too many babies; but that the vast majority of these babies are completely ineducable in the first place!

There is NO OTHER solution than to provide every incentive to reduce this problem at source.

But first we have to have the COURAGE and CANDOUR to admit to the problem in the first place.

Is there ANY economist in the house with the spine and personal integrity to stand up and do so???

Apparently… Not… At… All!

Sigh!

The population growth rate in SA is declining. It was 2.3% in 1994 and it is 1.3% in 1994.

With 40% plus unemployment, any positive growth rate is too high.

These stats are NOT supported by the published chart for SA Population Growth 1910-2016 – available on Google.

That chart is the GOLD STANDARD for depicting any change in population growth rates. Hint:the situation is getting WORSE, not better!

No it will not. Simply because the birthrate vastly exceeds economic growth rate.

SA will not solve the unemployment problem in my lifetime.
I employed quite a few people in a factory environment and the bigger the company got the the more hassles i had due to employee bad attitude, government interference, higher taxes etc etc.
i went the subcontracting route and i was not alone to reduce the headaches . even that eventually did not work so i sold out.
i know many many entrepeneurs who did the same.
the majority of SA youth suffer from DDD Syndrome, DOM DIFFICULT DEMANDING

As a business owner: I don’t hire if I can’t fire!
There is no way I want to be stuck with a worker that can not or will not do his or her job satisfactory.

The ANC has (finally) noticed the unemployment stats and is considering a few town and road name changes. The people will be pleased!

I am an SMME owner. I am trying my best to create as many jobs as possible.

We need a two child maximum policy here. More than two kids , no social grant. Yes its brutal but until we grow like a China or Indonesia we cannot and will not be able to afford all these unemployed people. Its simply not sustainable. Worse-the skilled will flee the failing state thus not creating new businesses. We have millions of unskilled and low skilled people but lack the young, clever California type engineering entrepreneurs.

no,it will never be solved.too many people SA is way over populated and how many just walked over the border into SA.

The idea that policy certainty is required to assist in solving an unemployment problem is ridiculous. So we can have policy certainty that the government will expropriate assets without compensation – how is that going to help with unemployment? Who is going to invest to create those jobs with a policy like that? Similarly we can have policy certainty that you have to give away 30 to 50%+ of your investment under racist BEE laws? Sure to encourage investment!

Excellent article, Adriaan. We cannot create jobs because we have failed to establish an investor-friendly environment. (Retired CEO. Manufacturing Industry).

The key to solving the unemployment problem lies with fixed capital investment. We live in a capital intensive world and sustainable jobs cost anything from R1 million and up, in fixed investment per job. Current policies wont attract rapidly more investment. in fact it will have he opposite effect.

End of comments.

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