YOUTH AND UNEMPLOYMENT
By Dr Gavin Lewis, published as an oped in the Star, 31/1/13

We know that work experience is the silver bullet for youth unemployment.  So the question becomes how to get South Africa’s unemployed youth into some form of formal employment where they can get work experience. And since government can’t create jobs, it has to be employment in the private sector.

Study after study by institutions such as the Small Business Development Project (SBD) and the Centre for Development Enterprise (CDE) shows that what employers are looking for in potential employees is some work experience or the basic skills sets needed for a specific job. Skills and training they can get quickly and efficiently in a tailored manner on the job – as needed for that job and not as dreamt up by the bureaucrats in the overfatted Sector Education and Training Authority (SETAs) which collect billions in skills development levies.

Indeed there is growing evidence that generic training schemes, such as entrepreneurship or workplace skills for unemployed youth, is just money down the drain. When technical skills are imparted without the opportunity for practical application in the workplace, they are all too often quickly forgotten and never used. All that the training schemes do is to park the unemployed youth for a while, without addressing the underlying causes of unemployment.

Training systems fail, Martin Godfrey of the World Bank says, “because young workers do not know which skills to acquire.” The international experience is that the most successful training is provided by the private sector where training and skills acquisition can be done most quickly and efficiently on the job. This ensures that employers can get exactly the skills sets they want, rather than what government officials think they want.

An example of this is Germany’s vocational training scheme, which combines attendance at the training school with a period of employment at lower than normal wage rates with suitable and interested businesses.

In South African schools, vocational education is not a high priority and has been relegated to the dysfunctional Further Education and Training (FET) sector. The result is that our education system is not supplying workers who have the basic skills sets that employers need for specific jobs. Partnerships with local businesses, including on-the-job training and linking school leavers to apprenticeships were rashly thrown out with the bathwater with the introduction of the SETAs.

So while international best practice shows that a well structured apprenticeship system based on trust and partnerships between business, labour and government is a proven solution to youth unemployment, instead we are burdened with crippling state intervention that focuses entirely on the supply sides of things. The result is that poorly motivated students at FET colleges or the ubiquitous SETAs are trained in out-of-date workshops far from the real economy, and subsequently fail to attract job offers from employers.

Not surprisingly, South African employers prefer to invest in workers with prior work experience. A major reason for this is that our labour regulations add considerable risk to employing new staff members.  To subsequently find out that the new hire is unsuitable and therefore must be fired, is a costly and laborious exercise. The bureaucracy of the Commission for Conciliation and Arbitration (CCMA) or the Labour Court consumes hours of company time and expense. Even the costs of normal retrenchment are very high in South Africa. Thus the stark reality is that employers must employ an unknown quantity at their own peril. In fact, the safest bet for employers is not to employ anyone at all, or to do so on a strictly limited temporary contract basis.

A further reason is the high cost of employing inexperienced young people, especially where they need on-the-job training. Yet within the ANC Alliance, organised labour has the power to effectively veto all new measures that would allow youth to be introduced to the workplace at a discounted wage rate.

Hence government’s rejection of the Youth Wage Subsidy proposals which would subsidise for a limited period the wages of  youth starting off their careers, despite Treasury’s endorsement in principle of the programme in 2007. This proposal, endorsed by the Democratic Alliance and tried with success elsewhere in the world (see the UK’s New Deal for Youth Employment, Canada’s Employment Tax Credit Programme) now languishes on the shelf until there is a change of government at national level.

The system is working well in the DA-controlled Western Cape, in the form of its Works and Skills Programme for youth aged between 18 and 35 years of age. But constraints on provincial tax raising powers mean that money is limited without national government buy-in.

Even the ban on labour broking which Cosatu so avidly seeks will hit the youth hard, because the evidence shows that temporary work greatly increases the chance of permanent jobs for the youth, who use the former as a stepping stone to the latter.

For all these reasons, Government’s refusal to relax its labour laws is breathtakingly short-sighted, especially set against international evidence that in all economies a youthful workforce can accelerate globally competitive manufacturing (e.g. electronics) and services, in particular innovative value-added products, from advertising to apps for cell phones.

So what is to be done?

One solution is to limit the reach of bargaining councils for whole sectors. This would entail individual firms negotiating their own terms with their own workers, as is the case in Chile. This avoids the Harrismith-type situation where workers and employers sought to band together to fight bargaining council agreements that priced them out of a job.

This is particularly relevant for start ups and small and medium-sized enterprises (SMEs), especially those employing between 10 and 100 people – the so called “missing middle” in firm sizes that create the most jobs.

Indeed, removing obstacles overall to start ups and emerging SMEs, the prime job generators in any economy, is also important – especially addressing unnecessary and costly over-regulation mismanaged by a state that lacks capacity.

In fact, the best thing government can do for unemployment is to create an enabling environment for business to flourish, and to build effective and affordable infrastructure,  on the basis of mutual trust and close cooperation with the private sector, mindful all the time of the shortcomings of state capacity.

Other possibilities are opportunity vouchers for school leavers to be used to subsidise a small business or to study further, the introduction of entrepreneurial studies in the school curriculum, and greater access to and better information from streamlined government enterprise support schemes at provincial and national levels.

 Better job search systems would also help address the problems of inadequate job matching, poor signalling from employers that want to hire staff, and weak labour market information systems.

Programmes that address job creation via tax incentives for businesses, labour law exemptions for special economic zones (SEZs) or job zones in deprived areas, public works programmes that are well run, of longer duration than the current average, corruption free and that produce identifiable skills, and removing the obstacles to growth, all have their role to play.

But is government ready and able to play its part in a united front against unemployment? It remains to be seen whether our new deputy president will be able to inject such business-minded thinking into the country’s leadership.