How to fix crisis of youth unemployment in the country

Nearly 40% of South Africa’s 20 million young people (aged 15-34) are NEETs (not in employment, education or training).

They are doing nothing, going nowhere and their numbers are increasing: at least 140 000 young people join the ranks of the unemployed every year.

There are fewer young people in employment today than there were in 2008 and more young people enter the job market every year than there are entry-level jobs.

These shockingly large numbers ought to shake up the way we think about youth unemployment in SA.

Instead of looking for solutions across the economy, SA’s political, economic and civic leaders have tended to propose projects and initiatives of limited scale, such as training programmes, assistance in job search and matching, internships and youth entrepreneurship.

Each might help a small group of beneficiaries but all fail the test of scale. None addresses the deep structural causes of mass youth unemployment. The reality is that youth unemployment is part of a problem of the whole economy needing whole economy solutions.

A serious strategy for dealing with this crisis begins with a realistic growth strategy that addresses the many ways in which bad leadership and domestic policy choices are a drag on growth.

All of them are related to the failure of policy-makers at all levels of government to understand that economic growth is driven by an empowered, dynamic private sector. An effective growth strategy has to be built on a crucial principle – companies are the best, most sustainable projects for creating mass employment.

Growth will return and then accelerate when the confidence of entrepreneurs, investors and private firms is restored in the leadership and policies of the present government or a new one.

This will happen when policymakers become much more realistic about how the costs of increasingly onerous regulations and failing state institutions vital for development and policy uncertainty strangle growth.

There is one way to address youth employment as a special category: to reform the many policies that create a gap between the cost of employing young people and the value that firms expect to be able to create employment for them. At present, far too many firms believe that employing unskilled, inexperienced young people costs too much when compared with their likely output.

One reason for this is that the gap between minimum and median wages is unusually small in SA. This means that young, inexperienced work-seekers cannot offer their services to employers at a discount to the wages earned by older workers who are both more experienced and less in need of supervision and training.

Unless the price of young workers falls relative to that of experienced workers, there is no incentive for employers to employ them. This locks young people out of employment.

The youth wage subsidy is the first time government has recognised the cost of employment matters if you want to expand jobs for young people. This experiment is a step in the right direction but should be coupled with making the hiring and firing of young people less highly regulated.

SA has to facilitate the growth of labour-intensive industries. Light manufacturing is held back by high wages since it competes directly with the low-wage economies of Asia and, increasingly, Ethiopia. Tens of millions of low-skill jobs are leaving China as wages rise. South Africa should position itself for some of these jobs.