Ideas matter | The government-imposed unemployment crisis continues apace

StatsSA reports that the country's unemployment rate rose to 32.6% in the first quarter of 2021 – the highest it has been in 13 years. When including discouraged job seekers, the rate now sits at 43.2%. 11,4 million South Africans are currently unemployed. With a snail's pace vaccine rollout effort, and little in terms of the kind of radical structural reform needed, these devastating facts should not surprise us. Indeed, were government to continue down the current path of increased control and bureaucracy, we will see yet more job-shedding in the future.

Government-imposed barriers to employment make it exceedingly difficult for job seekers to enter the market. One such example is the national minimum wage. Any minimum wage artificially affects the price at which an individual might choose to engage in work – the amount that they judge to be fair in exchange for their time, services, skill, or experience. If the minimum wage is above what they and potential employers could agree upon in a free market, they will lose out on the job.

In terms of youth unemployment, the groups aged 15-24 years and 25-34 years recorded rates of 63,3% and 41,3%, respectively. Using the expanded definition, 74.7% of youth are unemployed. Desperation is growing amongst South Africa's young people. At the moment all they are offered, are grand plans of more government spending and populism, none of which will create an environment in which they could enter the workforce as employees or even consider starting their own businesses.

For too many young people, they are ill-prepared for the world of work, given that they are subject to low standards of public education in South Africa. One way to improve the education system as a whole would be to give parents education vouchers, that they could use to send their children to a better school, and in turn incentivise improved standards at public schools.

Another record that South Africa has achieved is the number 5.4 million – the number of persons who have been unemployed for longer than one year. People who have been unemployed for longer than a year make up 75.3% of the unemployed population. A truly meaningful solution would be to exempt job seekers from minimum wage legislation, small and medium business from certain taxes and bureaucratic requirements, and consumers from other taxes that limit the amount of real economic activity in which they can engage. Such activity can spur a more friendly business environment, and add to the ability of current businesses to survive and later on employ more people.

Thomas Sowell has pointed out that minimum wage laws are "a barrier to professional knowledge and skillsets for members of the population who are uneducated and lack experience. These individuals are often the young, the poor, or all the above. Minimum wage laws prevent these individuals from entering the workforce and beginning their journey up the jobs ladder by pricing them out of the market for their potential employers."

Minimum wages – just like other forms of onerous legislation and bureaucracy – discourage smaller businesses from taking on more employees, thus denying more people the chance to learn skills and earn an income (and here, it is not for anyone else to paternalistically decide that another person is working for 'too little'). If we take the reality of individual agency and the value of dignity seriously, we have to be comfortable with people making decisions regarding jobs with which we may strongly disagree, but knowing that ultimately it is their choice.

Given the mounting fiscal pressure on the state, and that it is more difficult for the state to make repayments on its debt, various forms of social welfare grants will be whittled away – and even faster, if the state remains committed to keeping failed projects such as South African Airways afloat. Different forms of welfare could be consolidated into a universal basic income grant, as a pragmatic example, but this will need to be means-tested, and expire after an amount of time. It is immoral to force people to remain dependent on government handouts for their entire lives. Whether the state would actually have the administrative (and corruption-free) capability to implement such a grant, is perhaps the greatest concern.

To make real progress in reversing such massive unemployment, South Africa needs on average 3-5% economic growth for the next five years. Policies such as expropriation without compensation, National Health Insurance, prescribed assets, and localisation and protectionist trade measures will result in precisely the opposite, simply adding instability and encouraging both local and foreign businesses and investors to seek better returns elsewhere.

South Africa needs to be an environment that encourages all possible economic activity (from the smallest to the biggest); this will not happen through policies and ideas that make it difficult for businesses to operate and a state that consumes ever-more tax revenue, suffocating the private sector.

This article was first published on City Press on 7 June 2021.

Chris Hattingh

Chris Hattingh is Deputy Director at the Free Market Foundation. He sits on the Foundation's Executive Committee and Health Policy Unit. He is a member of the advisory council of the Initiative for African Trade and Prosperity, as well as a Senior Fellow at African Liberty.

Publish date: 15 June 2021
Views: 25 930

Chris Hattingh, unemployment, job creation, economic freedom, Labour

The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation. This article may be republished without prior consent but with acknowledgement to the author.

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