The recent Budget speech again highlighted the pressures on our economy and, in particular, the need to reduce youth unemployment and transform the high number of young people into a competitive advantage.
In South Africa, around 46 percent of young people aged 15 to 24 are out of work. It is one of the highest rates in the world. The government sees the pressing need for action as it has allocated more than 20 percent of national expenditure to education, including R23 billion for the development of educational infrastructure.
While this is admirable and necessary, addressing youth unemployment cannot and should not be left to “the powers that be”. We know that some of the finest minds in business, civil society and academia are grappling with the issue. For example, how to tackle youth unemployment was the question posed to the undergraduate entrants in this year’s Nedbank and Old Mutual Budget speech competition, now in its 43rd year.
The judges agreed that this year’s entrants were of a high standard: insightful and incisive. Overall winner Josh Budlender believes sustained inclusive economic growth and investment are needed to lower youth unemployment, but says there are a number of supplementary measures that would accelerate their impact.
A youth wage subsidy, which rewards employers that hire low-skilled workers aged 18 to 29 earning below the tax threshold, would provide people with access to the working world. It would help overcome the catch-22 situation that sees even talented graduates being unable to get work because they have no experience and can’t get experience because they can’t get work.
Budlender also refers to the structural mismatch between the skills demanded by the modern South African economy, and the skills it supplies. That ratio has grown from around 35:65 between 1970 and 1975, to 53:46 between 2000 and 2002.
“The causes of youth unemployment… are a combination of deficient demand for labour, due to the increasingly skills-intensive orientation of the SA economy, and substandard supply, caused by the emergence of low-skilled youth,” he says.
The National Treasury has found that unemployed young people have three times more chance of finding work if they have experience, and that introducing the subsidy would enable about 178 000 to work.
Budlender acknowledges that the youth wage subsidy is not without its flaws, but argues that it will be effective when combined with efforts to promote the growth of the informal sector. He acknowledges that informal employment is a poor substitute for work in the formal sector, but that it is better than no work at all.
The runner-up in the competition, Liberty Bapai, suggests several actions to address youth unemployment, including early education on career choices and mandatory work experience in all tertiary institutions. He notes that Chile, India, Australia and Belgium have minimum wages for teens below the adult rate. Properly regulated, this could give useful work experience to young people.
Any and all of these measures carry a cost, but none is as expensive as doing nothing about what Higher Education Minister Blade Nzimande calls a ticking time bomb.
Youth unemployment is a focus of the National Development Plan and a number of efforts are under way in business to facilitate small, medium and micro-sized enterprises. One example is Old Mutual’s Masisizane Fund, which helps create black-owned small enterprises, especially in rural and peri-urban areas.
Moneyweb’s Marc Ashton writes that at a recent MyStartupSA event, the initiative’s founder, Andile Khumalo, pointed out that black would-be entrepreneurs had access to less start-up finance from family and friends than their white counterparts. Such imbalances must be addressed.
The postgraduate category of the Nedbank and Old Mutual Budget Speech Competition asked entrants to examine the issue of energy security. It’s worth noting that one of the proposed remedies, investing massively in renewables, would have the added benefit of generating employment on a significant scale.
We have a number of powerful remedies within our reach and we must take them.
Mokaedi Dilotsotlhe is a general manager for marketing and communications at Old Mutual.