Business Maverick

Business Maverick

Youth employment relies on a rising tide of growth – but that’s a hard ask right now

If we are to alleviate rising youth unemployment, we need sustainable and predictable growth, locally and globally, which is looking increasingly unlikely. President Cyril Ramaphosa is fully committed to tackling this national crisis but is that going to be enough – or is inequality going to continue rising and with it the risks to South Africa’s stability.

In his Youth Day address on Sunday, President Cyril Ramaphosa described youth unemployment as a national crisis – and so he should. The youth unemployment rate broke above 55% in the first quarter of this year; up on the fourth quarter of 2018, higher than its 2013 to 2019 average and way above the 27.6% national unemployment rate.

It’s little wonder that the youth of today are feeling such despair and hopelessness about the future.

With youth representing more than a third of the South African population, their future becomes our future. That makes it all the more important to put as many resources as possible behind turning around this worrying trend.

Recent IMF Research confirms that the most important requirement for making inroads into unemployment – and youth unemployment in particular – is economic growth. But not just any economic growth, it needs to be sustainable and predictable economic growth.

The research, conducted by Burcu Hacibedel and Priscilla Muthoora, looked into the impact of short-term growth trends on unemployment and inequality, the results of which highlight that unemployment, especially among young people, is a key transmission channel from growth to inequality.

We looked at the impact of good and bad economic times on inequality through unemployment, access to finance, and government spending. We found that in low-income and emerging market countries, unemployment, especially among young people, is an important driver of inequality during good and bad times.”

They found that in good times, reduced unemployment, in general, explains 41% of the reduction in inequality in low-income and emerging market economies. Young people working more explains about over one-third of that reduction. In bad times, the authors say 28% of the increase in inequality is because of an increase in unemployment.

The key takeout: an increase in unemployment among young people is a key contributor to a rise in inequality.

Predictably, the research found that growth upswings tend to be associated with lower inequality, while growth downturns tend to be associated with higher inequality. However, most worrying was the evidence that showed that reductions in inequality during upswings are largely undone by slowdowns.

The relationship between growth and inequality has been positive over the last three decades, with inequality, as measured by the Gini coefficient, falling by about 20% as real GDP per capita nearly tripled in developing economies.

But current circumstances suggest that the global growth trajectory is under threat, with growth already under pressure. Worse than that for employment is that it may be more volatile than in the past. This could end up being a double whammy for unemployment.

With this in mind, Ramaphosa has an exceptionally tough job on his hands and it could well determine the success of his tenure as president of the country. He is off to a good start when it comes to the confidence the population has in him being able to do something to get the economy back on the right track.

Analysis of public sentiment towards the president conducted by Citizen Surveys immediately after the elections in May saw the number of South Africans who believed the country was heading in the right direction increase sharply to 38% from 29%. Citizen Surveys points out that this level has not been seen since the height of Ramaphoria in the second quarter of 2018.

However, the survey also shows that the “reversing economy” is his biggest challenge, with 73% of South Africans believing unemployment is the most important problem facing the country, followed by crime (34%) and poverty/destitution (25%). Reza Omar, Strategic Research Director at Citizen Surveys, notes that these top three problems facing the country could all be somewhat alleviated by a strong stance in countering the unemployment crisis.

So it’s little wonder that Ramaphosa spoke with such determination on Youth Day, listing a host of initiatives geared towards improving economic access for youths going forward – and quantifying the important achievements they have made so far. These included the Yes Initiative, the National Youth Development Agency and government’s public work programmes.

He’s on the right track. The IMF says policies targeted at increasing the employability of younger workers and reducing their vulnerability to economic downturns are important.

Structural reforms may be needed to address the features of labour markets which tend to exacerbate disparities in the distribution of income,” the IMF says.

These include tackling informal or self-employment, establishing social safety nets offered by employment protection or unemployment benefits and improving labour mobility.

In addition to existing government initiatives, Ramaphosa urged the private sector to actively participate in the imperative to reduce youth unemployment, calling on companies to put a moratorium on requiring first-time job market entrants to have to prove they have experience before being given a job.

While the government’s will and backing may be there, without growth it will be tough and a costly uphill battle to make any meaningful inroads – and the global economic backdrop certainly doesn’t look promising right now.

Emerging markets, including South Africa, are also finding themselves in a precarious growth position. In an article this week, Financial Times notes that the emerging market story is under scrutiny.

The intensifying trade war between the US and China has shone a light on a worrying long-term trend: the forces of global growth that boosted so many emerging economies — trade, supply chains and the commodities supercycle — are petering out, leaving the developing world in search of a new growth model.”

To become part of the solution, private sector companies will need far less volatility and much more certainty about the future if they are to make the necessary investment in expanding their labour forces.

Meanwhile, given the constraints on the fiscus and without sufficiently strong private sector support, government will be hard-pressed to provide the funding required to deliver the public sector support necessary for broad-spanning job initiatives.

What was good news in the president’s speech was the focus he put on the importance of gearing the youth for an increasing tech-centric world and what government plans to do in support of that. These include expanding in the number of technical colleges and introducing coding and data analytics into school education programmes, “all productive and growing areas of our economy”, says Ramaphosa.

While youth unemployment may not be cut back in big swathes over the next few years, a future-focused, targeted and relentlessly executed strategy to upskill the youth for the fourth industrial revolution could well set South Africa on the right path in dealing with our most pressing challenge. DM


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