Demolitions in the Second Avenue precinct have given way for the Second Avenue Court Yard
South Africa’s youth unemployment rate is the third highest in the world, after Greece and Spain.
The challenge is how to absorb a growing number of young people into the labour market, especially given that most of them are unskilled — an estimated 47% of the unemployed have less than matric.
Despite the government’s efforts to tackle poverty, the lack of access to employment and decent jobs has impeded efforts to tackle poverty and inequality. In addition, labour market trends such as the growth of non-standard employment including self-employment, temporary or part-time employment and sub-contracting have intensified the precarious position of young people in the labour market.
Employment patterns
A question that needs to be answered is whether the trends experienced in the economy are a feature of the changing nature of the economy, workplace organisation and labour markets or a result of the move towards flexibility of work to avoid labour regulations. It may be a result of a combination of both.
But given that labour markets are not homogeneous, it is important to deconstruct the rationale behind these trends to understand better the labour market dynamics and respond appropriately.
The effect of employment protection legislation is contested. Nevertheless there is a widely held view that strict labour legislation has led to reduced employment opportunities, a preference for contract and casual workers, especially among the youth and the most vulnerable workers. The limited employment opportunities in the formal sector have also led to an increase in the informal sector.
The informal sector is the main source of youth employment in most African countries. The extent to which the informal sector in South Africa absorbs the large pool of the unemployed requires further investigation.
Trends show that the proportion of people working in the informal sector typically declines as a country develops. According to Gallup World Poll data, in 2010, 75% of the working youth in low-income countries were in vulnerable employment, compared to 57% in lower middle-income countries and 26% in upper middle-income countries.
However, in South Africa, for historical reasons, only about 12% of young people work in the informal sector. While the share of the informal sector is relatively small in South Africa, the most prevalent form of youth employment is through insecure and informal employment in the formal sector through sub-contracting, with the absence of formal employment contracts, employment benefits and social protection, as well as temporary employment and flexible working.
Informal employment is deeply embedded in the formal sector. An example of this is the linkages between the waste recycling done by big formal industries and waste paper collectors, who work in horrendous conditions without any formal protection. Waste paper collectors pushing wheelbarrows sell the waste paper they collect to buy-back centres (where working conditions are no better), who then sell these papers back to big paper companies.
Similar examples can be found in the metal, mining and clothing industries. In 2005 it was estimated that 28% of the mining industry was sub-contracted, with platinum having the highest number of sub-contracted workers at 36%.
Most of the jobs created in the past two decades were in low-skill sectors such as retail, construction, and in lower end private services, such as security and household services. These sectors are characterised largely by insecure employment and low wages. Informal employment in these formal sectors of the economy is also a widespread practice and the most prevalent form of youth employment.
A recent report by Statistics South Africa shows that a high proportion of youth are employed on contracts of limited duration: 35.5% for 15-to-19-year-olds and 26% for 20-to-24-year-olds in 2014. This was an increase of about 10.5% and 7.2% respectively between 2008 and 2014. Casual employment is estimated to have doubled between 1993 and 2008 for Africans while it grew by 22% for whites over the same period.
Poverty rooted in the labour market
The employment patterns of young people underscore that waged and salaried workers experience high levels of economic vulnerability and that waged employment is no longer associated with job security.
It would not be desirable to prevent the trend towards greater flexibility in the labour market at the expense of job creation. However, increased flexibility should not come at the expense of young people’s ability to access social protection. If South Africa is to eradicate poverty and reduce inequality, both of which are rooted in the labour market, labour market flexibility and social protection should be seen as complementary.
The objective of the National Development Plan (NDP) is to attain full employment to tackle poverty and inequality, with economically active adult South Africans either employed or in meaningful self-employment.
Van der Berg and Liebbrandt estimate that between 78% and 85% of total inequality is explained by wage inequality. The focus should thus be on employment creation and decent work as these are essential for eradicating poverty and reducing inequality.
What needs to be done?
There are various measures that could be put in place, some short-term and others over the medium to long term. Labour market activation strategies to enhance the employability of young people and improve their chances of entering higher paying jobs are key to the success of the measures put in place. Most of these jobs will need to be in the private sector.
Interventions in the informal sector are important in achieving decent work for both poverty eradication and reducing inequality. Such interventions need to focus on increasing the opportunities for work, improving job quality and raising productivity, while also enhancing conditions for workers.
Education and training
To ensure the decent work agenda is embedded into changing labour market dynamics, it will be necessary to focus on investing in education, training and skills development.
Resolving the challenges in the education sector is a pre-requisite for addressing the labour market challenges faced by young people. The problem of unemployment — youth unemployment in particular — is intrinsically linked to the problems in schooling, including the high numbers of drop-outs, poor quality education and few pathways for those who exit school early or do not choose to follow the academic option of going to university. To improve young people’s prospects in the labour market, it is essential to address these challenges.
To improve the quality of jobs in the low-skilled sector and to tackle low productivity rates, it will also be important to focus on ensuring effective implementation of the national skills development framework. The framework is backed by financial resources through the skills development levy, but the implementation needs to be improved to ensure these resources are used effectively. This will require co-operation from key social partners.
Review labour relations
The growing informalisation of employment in the formal economy through sub-contracting and casualisation has far reaching policy implications for the system of labour relations. There is a need to revisit and refine the regulatory framework to overcome the economic and social dualism which exists in South African labour markets. This would include minimum wages policies that can compensate for the weak bargaining position of the lowest-paid workers and so promote greater equity.
Labour market activation strategies
The NDP warns that “unless urgent measures are implemented to increase economic participation and employment amongst the youth, the country will lose the advantages of the “youth bulg’, which may then turn out negatively”.
Given the current labour market dynamics the focus should be on overcoming obstacles and building strong incentive systems for employers. This would include mechanisms and incentives to assist the unemployed to access the labour market; incentives for employers and entrepreneurs to promote job creation; training and skilling to enhance labour market mobility; and addressing information asymmetries through providing job search assistance for the unemployed.
Extend coverage of social protection to the informal sector
South Africa has a relatively good comprehensive social protection system, but it is still under-developed and there are some major gaps and inefficiencies that need to be addressed. The most obvious gap is the lack of coverage of employment arrangements in the informal sector. Social security is largely based on employer-employee contributions and mostly only available for those with employment contracts, through the unemployment insurance fund, provision for illness and injury on duty, old age and retirement funds, and paid maternity leave.
Due to the low wages paid in the sectors where most young people work, they are unable to generate sufficient savings to protect themselves against risks such as losing their job through redundancy or injury. These workers, who have some of the lowest wages and highest levels of job insecurity, are therefore most likely to suffer from the gaps in the social protection system.
This makes it important to look at how the social protection system can compensate for the changing dynamics of the labour market, and includes ensuring an effective package of social protection and quality public services to enable young people to respond to the changing patterns of the labour market.
Percy Moleke works in the secretariat of the National Planning Commission.