Causes of unemployment in South Africa

Recently I described how employment in South Africa is a totally different ballgame to that in the US, and as a result needs different strategies to fix.

The starting point then is to understand the causes of our structural unemployment in order to figure out how to fix it.

Why do we have high and persistent structural unemployment? I don’t pretend to be an expert here, but some of the typical reasons proffered are:

  1. Generally poor education levels thus a mismatch of too much unskilled labour and insufficient skilled labour. This has been exacerbated by the growth in tertiary sectors of the economy at the expense of primary (particularly agriculture and mining) at a rate far faster than the country can be retrained.
  2. Breakdown of the apprenticeship system which enhanced skills (and not adequately replaced with SETA type skills training)
  3. Minimum wages that prevent employers from employing staff at a rate that both parties would be prepared to work for/pay. This reflects the strong political and bargaining power of organised labour.
  4. Overly protective Labour Laws (for employees) making it less attractive to hire new staff

There are some other, more subtle points that I’ve been mulling over recently. These problems require different solutions and different policy thinking:

Location and travel

Apartheid Group Areas acts have resulted in large sections of our population living far away from their place of work. Without cheap public transport, the minimum wage that potential employees will consider is high, including the significant cost of travel. What is the point in travelling to work only to pay three-quarters of your wages in travel costs?

Vicious circle of poverty

The long-unemployed are nearly unemployable. Skills become rusty and the ability to perform effectively degrades. (This is one of the reasons periods of high cyclical unemployment can give rise to higher structural unemployment). This has been partly identified in terms of the need to employ our youth early on, even at subsidised wages, in order to give them the work-experience and skills to become employable in future. (President Zuma’s planned youth wage subsidy was shot down by Cosatu.)

I’ve blogged before highlighting youth unemployment as a massive problem all of its own.

Living conditions, health and being presentable are more difficult to maintain while unemployed, making it harder for a prospective employer to hire you.

Second order effects of skills shortages

Having the wrong skills makes it hard to get a job. Further, having an overall shortage of skilled labour in an economy can arguably limit the opportunities for employment of less skilled labour. (If true, this has big implications for encouraging skilled immigration and limiting brain-drain.)

Pride and self-value

Being unemployed must have less stigma attached when a quarter of our work-force is unemployed. The motivation to accept work, any work at any going wage since any work is better than no work may be weaker as a result. This is a type of “downwards sticky wages”.

International trade

International trade is good for everyone. Well at least that’s the mainstream view. Comparative advantage means that everybody is better off if we all focus on making what we are best at.

This all breaks down when a particular country is far from full employment. If structural unemployment is high because of mismatched skills, there are strong arguments to support interim protection of industries and jobs provided their is a medium term plan to ensure the right skills become available over time. Structural unemployment reflects a break-down in the assumptions underlying economic models and therefore those same economic models should be used with caution when making policy recommendations.  Removing structural unemployment for South Africa is a decades-long challenge. As I’ve mentioned before, this is an area I struggle to understand fully at the moment.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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  1. I recently met with an Irishman who’s settled in SA and who is looking to build a ‘free’ (no fee) educational institution (and is well connected, driven and stands a good chance of bringing this to a degree of fruition).

    His comment on the single, most jarring issue facing him when interacting with South Africans in general (less with those already in the higher income groups): that just about all he interacted with in his preparations seemed to have an external locus of control, i.e. things happen “to me”, rather than “because of me”.

    To the extent this was encouraged by the apartheid government (no way did they want the downtrodden to think that it was within their control to effect change), this is extremely insidious consequence. Subject to the risk of confirmation bias, it fits the “give me a job”, “pay me a living wage”, etc mindset extraordinarily well (i.e. instead of focusing on self-skilling, risk-taking and other self-initiated improvements).

    Steve Biko’s philosophies are very consistent with the historical existence of above state of affairs, however uncomfortable I am with the solutions that he had then suggested.

    Cognisant of the nature of the human mind, I am firmly of the belief that it would be a very high value activity to identify narratives of successful people, to whom the less advantaged can easily relate, and to spread these narratives.

    We need more Herman & Connie Mashaba’s and fewer Tokyo Sexwale’s and Cyril Ramaphosa’s; more traditional entrepeneurial narratives and fewer “deal makers” narratives.

    1. I read a fascinating book, “In the footsteps of Mr Kurtz” about the DRC. One theory put forward it was the Belgian colonial stripping of an internal locus of control, of the ability to change and rise up and self-determine a path through their absolute and very violent put-down of any opposition that “trained” the Congalese to think that they had no control. Mobutu Sese Seko was able to control the country because they were already a broken people.

      I don’t know if this is an inspired or contrive analogy, but it speaks to some extent to the loss of internal locus of control given our history.

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