/ 31 March 2022

Want jobs? Reform South Africa’s labour market

Job losses in June amounted to 31 781
How to create one million jobs in South Africa

This week, Statistics South Africa announced that South Africa’s unemployment rate rose to a record high 35.3% in the last quarter of 2021. This was an increase of 0.4 percentage points from the previous quarterly unemployment rate. The expanded definition of unemployment is 46.2%.

With these staggering numbers, we have an astronomical crisis in the country. Too many South Africans are jobless with no hope of finding work anytime soon. Unemployment is one of the many crises experienced by South Africa in the democratic era.

People’s views on what causes our high unemployment differ across the political spectrum. In my observation, people who believe in government interventions in the economy have a different set of views on the cause of unemployment than those who think that government’s role in the economy must be limited.  

The advocates of more state involvement want the government to do “more” to create jobs. Spend more, regulate more, own more. This is perplexing because our government has been doing more of this over the past two decades, and yet here we are — with astronomical unemployment rates.

There are political parties that advance a view that we must follow the Venezuelan socialist path: a path that has destroyed people’s livelihoods in that country over the past two decades of Hugo Chavez and Nicolás Maduro. 

That Venezuela became a disaster because of socialist policies is meaningless to some South African politicians. It is a classic case of history, from which not all politicians learn. They keep repeating destructive policies with the view that “this time, we will get it right”.

The shocking South African unemployment crisis highlights the country’s fundamental problems with its labour market.

As already pointed out by researchers, we have a labour market that discourages rapid job creation. Why this is the case is not rocket science. Ill-conceived public policy has been central to creating this rigid labour market. Much of what government does discourages investment – and, therefore, job creation.

We need to urgently rethink our public policy for the benefit of the jobless. It begins with us, as citizens, holding public officials accountable, because we have the power to change the course of the country.

Assess our competitiveness

How we reverse these unacceptable unemployment problems must begin with an assessment of the country’s competitiveness. In this area, as assessed by reputable organisations, South Africa lags.

We must face the reality that we live in a globalised world where we compete with nations from all over the world. This is a big challenge for us as we face the fundamental problems of weak education and broken infrastructure.

The problem with this lack of competitiveness is that we cannot attract investors at a rate we should. Addressing the lack of competitiveness will help nurture our labour market and bolster job creation.

Creating a competitive environment means we must embark on massive pro-market reforms that aim to boost entrepreneurship and business growth. We must deal with labour laws that make it difficult for businesses to operate effectively. 

Scrap minimum wage

If I was the president of South Africa, my first attempt in creating a labour market that is conducive to rapid job creation would entail scrapping the existing minimum wage laws. I would pursue basic economics. Minimum wage laws in a country like South Africa are undesirable and must be contested by those who want to see a prosperous, competitive country.

Proposing to remove or removing the minimum wage laws would be a controversial step. People perceive any idea of scrapping minimum wage laws as anti-worker or anti-poor. They regard this action as an immoral act that disregards the needs of the poor. 

In South Africa this is the prevailing narrative, even among the left-wing elite.

But there is nothing anti-poor about creating opportunities for those who are jobless. The absence of minimum wage laws helps with creating those opportunities. With minimum wage laws, those who are jobless and willing to work for a wage below the minimum struggle to find jobs.

As president I would also strive for an environment where it is very easy to hire – as well as  fire. With the current labour laws, dismissing an employee is very costly. These regulations would be removed overnight in my administration.

Addressing the problems of unemployment requires us to make big, bold decisions. If our goal is to reduce the shocking unemployment rates these are the decisions that should, and would, put the interests of the unemployed first.

Phumlani M Majozi, a senior fellow at African Liberty, writes for the Free Market Foundation. His website is phumlanimajozi.com. Follow him on Twitter: @PhumlaniMMajozi. The views expressed in the article are the author’s and not necessarily shared by the members of the Foundation