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.