Youth unemployment is the ticking bomb threatening the rainbow nation
On the odd occasion I’ve tackled the tricky issue of the African National Congress (ANC), Congress of South African Trade Unions (Cosatu) and SA Communist Party (SACP) alliance I’ve been accused of having a shallow grasp of the country’s political (and tr
Authors Richard Pike, Loane Sharp and Ted Black set the theme for their reader-friendly economic study by posing the following question: “Will high wages and a lack of leadership create an unemployed majority in South Africa?” Are you intrigued? I certainly was. And my interest intensified after listening to an hour-long presentation on the topic. Pike, the chief executive officer of JSE-listed Adcorp Holdings Limited, shared his views unemployment at an event hosted by the Free Market Foundation in Johannesburg, 29 June 2011. Their conclusion: “The number of unemployed, young, black South Africans poses the greatest threat of all to our young democracy!”
The picture today...
In fact one could argue that unemployment is the only obstacle to South Africa reaching its full growth potential. By this I mean it is possible to draw links between unemployment and any of the country’s social ills! How serious is the problem?
The latest available official assessment of the country’s jobs landscape is the Q1 2011 Labour Force Survey published by Statistics SA, 2 May 2011. This survey confirms an official unemployment rate of 25%... But the reality is far grimmer. Like most of its international peers, Statistics SA uses a number of filters to ‘dress down’ the jobs reality. They conclude that at 31 March 2011 there were 32.314 million South Africans between the ages of 15 and 64, the country’s maximum potential workforce. The trick in ‘dressing down’ the unemployment number is to acknowledge the sector of the population that is not economically active, by choice or through circumstance.
So before crunching the numbers Statistics SA ‘strips out’ 2.223 million discouraged work seekers (people who have given up on ever getting work) and 12.609 million people who simply don’t want or need work. And that leaves only 17.482 million active jobseekers. Around 13.118 million of these individuals are employed and accounted for by the statistics body under a number of headings, including formal sector (non-agriculture), informal sector (non-agriculture), agriculture and private households. And that leaves ‘only’ 4.364 million unemployed. The 25% official unemployment rate is an expression of these individuals divided by the number of active job seekers! Thus South Africa’s labour absorption rate (the number of employed as a percentage of the total workforce) is 40.6% and its labour force participation rate (employed and discouraged individuals as a percentage of the total workforce) stands at 54.1%.
The disenfranchised youth
How does the youth fare in this unemployment ‘test’? A 2008 youth unemployment study comprising 35 OECD countries lists the top performers as Thailand, Netherlands, Mexico, Switzerland and Denmark, all with rates below 10%. On the opposite end of the scale we have countries such as Hungary, Greece, Turkey, Italy and Spain, hovering between 20% and 25%... Back in South Africa the 2008 youth unemployment number stood at 45%, and it gets worse every year!
Government, business, trade unions and the myriad political organisations plying their respective ‘trades’ in South Africa all agree that the unemployment rate is too high, but they cannot seem to progress beyond acknowledging the problem. The encouraging noises we’ve heard during successive speeches and presentations by President Jacob Zuma (2011 State of the Nation Address), Finance Minister Pravin Gordhan (2011/12 Budget Speech) and National Planning Minister Trevor Manuel (National Planning Report) have finally progressed from vague promises of five million jobs by 2015 to wage subsidies and other state-subsidised job creation initiatives. But obstacles remain.
On high wages and clashing political ideologies
We mentioned the Tripartite Alliance in the opening paragraph… Pike & co identify differing political ideologies among the members of this alliance as one of the main hindrances to job creation. And there is certainly a case to be made that the ruling party has lost ground in the race for jobs in favour of keeping its alliance partners happy. At the moment government’s “bargaining arrangements push up entry-level wages, pricing out inexperienced work seekers” comment juxtaposes with Cosatu’s “wage subsidies for the youth will threaten job security and the wage rate of workers” position. How bizarre that in a country with 25% unemployment, and youth unemployment nearer 50%, a finance minister-backed call to implement a wage subsidy for young workers is contested by the trade unions, themselves part of the ruling party / government structures. Of course the authors of The New Divide put it more succinctly. They say: “The relationship between government and unions has inadvertently contributed to the exclusion of the unemployed from active work as wages exceed economic contribution.”
A basic assessment of the alliance finds unions demanding higher wages regardless of the impact on job creation, with the ruling party bowing to a range of union pressures in return for their members’ support in future elections. Pike & co observe that union obsession with hiking wages isn’t a solution for unemployment (and we’d venture poverty too) but rather a form of segregation for the jobless. They say that the new divide is the gap the unemployed have to bridge before it becomes viable for private sector firms to hire them, and the higher the unions drive the minimum wage, the more difficult it becomes to cross this divide.
The New Divide includes one of the most graphic illustrations of labour’s influence on government law making I have ever seen. The graph plots economic activity and employment on the same set of axes going back to the 1940s… The correlation between economic activity and employment is virtually 100% until the Wiehahn Commission of 1977 recommends the registration of black trade unions. Suddenly the two graphs diverge, with employment flat-lining while economic activity continues unabated. And in the early 1990s, as the Labour Relations Act of 1995 is carved out, the ‘gap’ between economic activity and employment widens further.
Violent strike action hammers more nails in the employment coffin
This week workers in the steel and chemicals industries went out on strike. And Cosatu has promised this strike is the first in a series of ‘no holds barred’ actions aimed at securing a living wage and bringing employers to their knees. They will no doubt succeed in securing inflation-plus increases for their dwindling member base, but at what cost to the economy. In the same week retailer Pick ‘n Pay announced it would lay off more than 3,000 staff. And I’m certain many of the affected companies – already suffering due to massive spikes in electricity costs and soft post-recession sales – will announce retrenchments of their own in coming months. Do the unions need more proof that higher wages for some raise the hurdle for the many unemployed who would prefer low wages over no wages at all?
Editor’s thoughts: I’ve pretty much said my piece on the unemployment debate. Feel free to add your comment or feedback on the issue below, or send it to gareth@fanews.co.za
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