Crowding out jobs

DEAR SIR — Your Editorial, Time bomb keeps ticking for ANC, September 19, is more than timely. It reminds our political elite about arguably their most important economic obligation to the citizens of this country, which is job creation. The issue has all the hallmarks of a lack of political will, although for what motives is not always clear.

But an equally worrying question (some will say more worrying) is whether the state has the power to increase the numbers of stable jobs in the long term.

In international literature there is a viewpoint which holds that creating public sector jobs can destroy private sector jobs, so that the net gain in employment is minor or even nonexistent. This phenomenon is called “crowding out”, familiar in the wellestablished arguments about investment expansion in the long run.

The contention is that creating jobs in the public sector can have negative effects on private sector hiring. Some examples are: raising wage rates to make labour more costly; increasing the fiscal burden; competing directly for scarce skills; fostering educational choices resulting in qualifications that favour public sector employment more than job-specific skills demanded in the private sector; higher interest rates; competition from state-owned enterprises; and other possible ways which must by now be familiar to some readers of this newspaper.

Up to now the existing research work has been conducted by international organisations such as the International Monetary Fund and the Organisation for Economic Co-operation and Development.

The results remain preliminary and controversial. But it certainly provides a powerful motive for our economic ministries to undertake rigorous research on the issue. The eventual results might radically change the economic debates in our country.

Sean Archer Rondebosch