Op-ed: Deep change is needed to bring SA’s young people into the economy |Business Day

08 Sep 2017, by Ann Bernstein

Incoherent and unrealistic government policies create barriers to entry into labour and educational opportunities.

Almost 40% of SA’s 20-million young people are what are called Neets — not in employment, education or training. They are, in effect, doing nothing and going nowhere. Unless we rethink how we create employment, educational and training opportunities for them, SA will remain a country of young people, but not a country for young people.

Rethinking the terms of the social contract SA has with its young people must start with a recognition of just how badly current policy has failed. The key marker of this is the fact that there are fewer young people in employment today than there were in 2008, and there are more young people entering the job market every year than there are entry-level jobs.

There can be no more damning indictment than this of the government’s pursuit of a high-wage, high-skills developmental trajectory. The proposed implementation of a national minimum wage is bound to make matters worse.

Confronted by these facts, SA’s political, economic and civic leaders tend to propose the design or implementation of a limited range of projects and initiatives, none of which could plausibly generate large numbers of new jobs.

These initiatives – whether they are training programmes, assistance in job search and matching, or internships – fail the test of scale: each could help a small group of beneficiaries, but none addresses the deep structural causes of mass youth unemployment.

A serious strategy for dealing with the crisis of youth unemployment begins with a realistic growth strategy. This has to look at the many ways in which bad leadership and domestic policy choices are a drag on growth, and which has resulted in the emergence of a widening gap between SA’s growth performance and the growth achieved by other developing countries.

This gap is largely explained by the failure of policy makers at all levels of government to understand that economic growth is driven by an empowered, dynamic private sector.

If growth is ever to accelerate, it will be because entrepreneurs and private firms regain confidence in the leadership and policies pursued by the government. Policy makers will need to be much more realistic about the extent to which business is able to absorb the costs of increasingly onerous regulations, failing state institutions that are vital for development, and policy uncertainty, if not incoherence.

An effective growth strategy has to be built on a critical point: companies are the best, most sustainable employment-creation projects. Apart from prioritising enterprise-led growth, the government needs 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 by employing those young people.

At present, far too many firms believe that employing unskilled, inexperienced young people costs too much when compared with their likely output. In addition, they anticipate (based on past experience) that the costs of employment will rise more quickly than productivity and, as a result, even those young people who might profitably be put to work today, will become unaffordable in future.

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. It is therefore entirely predictable that the implementation of a national minimum wage that is higher than median wages in many industries will lead to less youth employment.

The youth wage subsidy is the first occasion the government has recognised that employers will be more reluctant to employ young people if the cost of employing them is no different from employing older workers. This is a step in the right direction but should be coupled with making the hiring and firing of young people less highly regulated.

SA must 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. SA should try to get some of these jobs.

The Centre for Development and Enterprise has proposed the creation of an export-processing zone in which employers are not bound by minimum wage agreements and are free to negotiate wages and working hours, to test how fast this sector could grow. While the costs of employment have an effect on how labour-intensive tourism might be, the bigger constraint on this sector’s growth is unwelcoming visa application policies that make it harder than it has to be for tourists from many countries to visit.

Apart from reforms that would accelerate growth and make it more labour intensive, an employment-focused agenda for action would also recognise that SA’s spatial economy is unsustainable. Shaped by the malign policies of apartheid and by the agricultural and mining sectors that used to employ far more people, the distribution of SA’s population does not reflect the reality that our major cities have much better prospects for growing employment than any other types of settlement.

SA needs to manage cities far better: recognise the critical importance of urban investment to accommodate faster urbanisation; achieve greater densification; build more affordable and efficient transport networks; and integrate urban economies that are still racially divided.

Outside the large cities, many people live in areas of low economic potential – a direct consequence of apartheid. Postapartheid governments have not done nearly enough to change this through effective rural, regional, local government and urbanisation strategies.

Young people living in low-potential places across the country need assistance. However, the help provided should focus on people, not places, and should seek to make beneficiaries more mobile and more attractive to employers elsewhere. In particular, they should focus, principally, on spatial policies that make cities with higher potential into places of hope, jobs and training for young people.

SA’s youth face enormous obstacles: the education system fails most of them, the economy is in a deep hole, and labour market policies force them to compete with older, more experienced workers without permitting them to offer their services at a discount.

Fixing this will take a degree of political courage, vision and technical competence that has been sorely lacking. Political and business leaders need to think differently about the scale of youth unemployment and the nature of the fundamental reforms required to make SA a country for young people.

Bernstein is the head of the Centre for Development and Enterprise (cde.org.za). This article is based on a new series of reports titled Youth Unemployment: an Agenda for Action.

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