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Targeting Youth to Reduce South Africa’s Unemployment
June 19, 2013 | Contribution by INGRID WOOLARD

By Ingrid Woolard, Associate Professor, University of Cape Town's School of Economics, and Research Associate, Southern Africa Labour and Development Research (SALDRU)


IT training for kids who live in the surrounding farm areas of
Stutterheim outside East London in the Eastern Cape. South Africa.
Photo: Trevor Samson / World Bank


Globally youth are, on average, nearly three times more likely to be unemployed than older adults. In South Africa this problem has been exacerbated by the global downturn. When the economy slowed down, youth unemployment began to rise sooner than adult unemployment, suggesting that younger people are more vulnerable to changing economic conditions.

The question arises whether one should specifically target youth among the unemployed. It could be reasonably argued that policies that aim to increase employment will automatically assist the youth without creating unnecessary distortions through targeting. However, I would argue that youth face sufficiently more barriers to entering the labor market to merit specific interventions.

A tougher job picture for youth

In South Africa, overall unemployment is high, with the narrow rate (which counts only those that are actively seeking work) at 22.1 percent in late 2012. But the rate is even higher for youth, with variations by age, gender, region, and race.

  • • The highest unemployment rate is among teenagers (42 percent), but the picture is not much better for youth in their early 20's (40 percent).
  • • Female youth unemployment rate is 6.6 percentage points higher than the male rate, whereas the differential between male and female adults (25-64) is only 2.4 points.
  • • In traditional authority areas (essentially the former homelands), the youth unemployment rate is 33 percent — well below the rates in urban formal (44 percent) and urban informal (45 percent) areas, where youth are more likely to reside.
  • • Unemployment among white youth (17.8 percent) is way below a staggering 41.9 percent among African youth (the government uses 4 racial classifications: African, coloured, Indian, and white).
A big problem for youth is the numerous barriers to employment, such as their high cost of labor, low skill, difficulty with job search, and persistently low employment outcomes.

Too expensive. Youth labor poses relatively high costs and low productivity for potential employers. There is some evidence that youth hold unrealistically high reservation wages, a complicating factor in a market where inflexibility to adjustments causes unskilled wages in some sectors to already exceed the marginal product of labor. As a result, youth tend to be "last-in" and "first-out" of employment (ILO, 2006).

Inadequate education. Without the benefit of on-the-job training and past work experience, low-skilled youth don't look particularly attractive to employers — resulting in a frequent mismatch between what the labor market requires and what the youth can offer.

Harder job search. A young person is likely to have accumulated less social capital than someone older, and since their friends are also likely to be unemployed, it's tougher to leverage their networks. One South African study (Burns et al, 2010b) estimates that social networks alone might enhance the probability of finding employment by as much as 3 to 12 percentage points.

Lasting setbacks. Two well-observed consequences of unemployment during youth are a persistently lower wage ("wage scarring") and lower probability of being employed in later life. While no estimates of these effects exist in South Africa, a U.S. study estimates that being unemployed while young results in 7.5 percent and 13.4 percent lower earnings for males and females respectively, in the third year following employment (Kletzer and Fairlie, 2003).

Interventions to overcome labor market barriers for youth

What can be done to improve the job picture for youth? I'd like to suggest four possible remedies.

First, encourage the growth of industries and firms that tend to have a high degree of youth labor absorption. One way is adopting an industrial policy that explicitly targets job creation for youth. The Department of Trade and Industry's Industrial Policy Action Plan (2011) outlines the government's intention to support labor-intensive industries, which should boost employment across the board. Calibrating aspects of this policy for optimum job-creation among younger generations can be done by creating entrepreneurial and apprenticeship programs.

Another way is using direct public-sector employment schemes to target young people and impart valuable skills. South Africa's Expanded Public Works Programme (EPWP) has created 1.6 million jobs but has been criticized for lacking the potential for effectively skilling its participants (McCord, 2005, 2008). Young people would benefit if training were made an integral part of the program — functioning like an apprenticeship program, with practical work supplementing classroom learning.

Second, bring youth labor costs and productivity in line with one another. This can be done by decreasing youth labor costs and increasing youth labor productivity. Realistic measures would be easing legislation for temporary youth employment and permitting fixed-term contracts and infrequent work for specific functions or tasks (ILO, 2012b). But care must be taken not to impede workers’ long-term financial stability by preventing them from accessing social benefits like unemployment insurance.

Third, address the shortage in supply of high-skilled youth and shortage in demand for low- to medium-skilled youth. Better quality schooling and high-school completion rates should increase the supply of high-skilled youth. And the provision of intermediate skills training at vocational colleges should make low- to medium-skilled youth more attractive to employers.

Fourth, assist youth in an efficient job search process. Employment services should match job-seekers with employers by providing market information and job search skills. This includes counseling, guidance, and advertisement of active labor market programs (ALMPs). It has been shown that passive labor market policies (such as unemployment benefits) can discourage job search, but they can also play an important role in loosening credit constraints to facilitate search. Passive labor market policies should be integrated within an ALMP framework and be conditional on participating in certain competency-building activities or actively searching for a job. I believe that within South Africa — and the African continent as a whole — lies potential for economic development that can be reached by providing employment for our large and growing youth population. This was achieved by the East Asia Tigers where 40 percent of their growth is thought to be thanks to their youth bulge, in conjunction with human capital development (Brenthurst Foundation, 2011). Creating employment for youth by implementing and testing the policies recommended in this blog can have a virtuous and sustained effect on South African aggregate employment, development, and growth.
 

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