How to address the unemployment rate in South Africa
The unemployment crisis in South Africa remains the top priority for economic policy, just as it has been for all governments since 1994. However, the challenge lies in determining the best course of action to address this issue, as there are no easy solutions and various perspectives on how to tackle it. The problem is multifaceted, involving both global and domestic factors, and it has been a persistent feature of the labor market in the post-apartheid era. Understanding the complexity of the issue is crucial, as it is deeply connected to broader economic policies. Solving unemployment is essential for reducing inequality and addressing other social and economic challenges, as well as minimizing the waste of human resources.
As of now, South Africa’s official unemployment rate stands at 32.9%. When discouraged workers—those who have stopped searching for jobs—are included, the rate climbs to 41.9%. Among young people aged 15 to 24, the unemployment rate is an alarming 59.7%. This means that approximately 11.2 million South Africans are unemployed when discouraged workers are factored in. To effectively address unemployment, it is important to grasp the underlying causes, which include both global and local issues.
Globally, two key factors have contributed to rising unemployment. The first is rapid technological change over the past three decades, marked by advancements in computer, digital, and artificial intelligence technologies. These innovations have decreased the demand for low-skilled labor while increasing the demand for high-skilled workers, resulting in a net reduction in jobs and wages for low-skilled occupations. The second global issue is China’s integration into the global production system, which has significantly impacted employment worldwide. As production shifted to China, many countries, including South Africa, experienced job losses, a phenomenon described by Harvard economist Richard Freeman as the “great doubling” of the global labor force.
Domestically, South Africa faces two primary challenges. First, the legacy of apartheid has left a deep scar on the labor market. Under apartheid, most Black women were not allowed to live in cities or work for wages, and as a result, they were classified as economically inactive. After apartheid ended, these women migrated to cities and entered the labor market, but many were unable to find jobs, which led to a significant rise in the official unemployment rate. Additionally, apartheid policies restricted economic activity in homelands and rural areas, leaving these regions economically underdeveloped. The second national issue is that while new jobs have been created, the size of the labor force has been growing at a faster rate, outpacing job creation.
Some argue that the solution to unemployment lies in deregulating the labor market, suggesting that South Africa’s labor laws provide too much protection for workers and that wages are too high for employers. This view sees unemployment as a supply-side issue, where workers are either demanding too much in wages or lack the necessary skills for available jobs. Proponents of this view believe that reducing wages and labor protections would allow the market to clear, reducing unemployment. However, this approach is unlikely to succeed. First, it ignores the historical context of the labor market. Second, lowering wages would likely increase inequality and is politically unfeasible. Third, the real issue is that even during periods of economic growth, job creation has lagged behind the growth of the labor force.
To address unemployment, South Africa needs a shift toward an economic growth model that increases the demand for labor. One element of this approach involves substantial public investment in rural areas and townships, focusing on improving infrastructure such as transportation and telecommunications to better integrate these areas into the broader economy. Additionally, more accommodating macroeconomic policies are needed. Currently, South Africa’s monetary policy focuses on controlling inflation by maintaining high interest rates, which attracts capital but does little to encourage job-creating investments. A reorientation of macroeconomic policies toward promoting employment-intensive growth is essential, while still maintaining a focus on inflation control.
Moreover, South Africa’s informal economy is relatively small compared to other developing countries. Policies that encourage public investment in marginalized areas could help stimulate informal work opportunities. Another potential game-changer is investment in renewable energy. South Africa has a natural advantage in solar and wind energy production, and increasing investment in renewable energy, along with the manufacturing and services activities that support clean energy production, has the potential to generate significant employment. This shift toward a greener economy could reshape South Africa’s economic trajectory, leading to a more labor-intensive and sustainable growth path.
In conclusion, solving South Africa’s unemployment crisis will require a combination of innovative thinking and policies that prioritize job creation and labor demand. Public investment, macroeconomic reforms, and a focus on renewable energy are key components of a strategy that could address the structural issues in the labor market and set the country on a path toward sustainable and inclusive economic growth.