solution of unemployment in south africa essay

To reduce South Africa’s unemployment, make work more attractive

Subscribe to the sustainable development bulletin, jacques morisset jacques morisset lead economist and program leader for vietnam - world bank.

October 13, 2023

At over 30%, unemployment is South Africa’s biggest contemporary challenge. Of course, there are diverse reasons behind the incapacity of the South African economy to provide sufficient jobs for its working population but allow me to focus on one: limited financial incentives for a poor South African to look for employment. The key question in South Africa is not why people are unemployed but rather why they should work.  

The financial incentives to work are low 

To answer this question, I simply calculate how much money a typical South African worker (Dumisani) entering the formal labor market is expected to bring home in comparison with a Vietnamese worker (Dung). In doing so, I focus on taxes and transport costs (Figure 1). This comparison demonstrates that a low-income worker in South Africa has realistically few incentives to work or at least much less than a worker in Vietnam, a country with rapid job growth.  

For the same gross salary of $1,000 per month, Dumisani keeps in his pocket less than half of the money that Dung would because of higher taxes and transport costs. Unfortunately, Dumisani is not an exception as the personal income tax rate is set at 18% for those earning up to about $1,000 per month in South Africa, while it is only 5% (up to $215), 10% (between $215 and $430), and 15% (between $430 and $760) in Vietnam. The personal allowance, which can be deduced from the tax payment for a single worker, is also slightly lower in South Africa ($400 versus $475). Other East Asian countries, like Indonesia and Malaysia , also have personal income taxes with lower entry rates than South Africa.  

South African workers like Dumisani are also heavily penalized by transport costs due to long commutes between townships and industrial/business centers. Two economists from the Harvard Growth Lab ( Shah and Sturzenegger ) estimate that the average transport costs for those who are employed in South Africa is equal to 57% of net wages when the time to commute is accounted for. 1 In Vietnam, the same cost is estimated at only 10% of net wages because of shorter distances and more competitive modes of transport, including motorcycles.  

In his decision to work, Dumisani will consider not only how much he will earn but also the amount of money that he could have expected from the government if he was not working. Like many low-income families, he or a member of his household would have qualified for a form of social transfers (grants/subsidies) distributed by the government. 2 When becoming active in the labor market, Dumisani could lose some of these social benefits, including unemployment insurance, the unallocated grants for low-income households (e.g., the COVID-grant), and the provision of free public services (electricity, water) to “indigent” households. By contrast, Dung is unlikely to receive any transfers from the government as social support in Vietnam is limited to a few specific groups (war heroes and people living with disabilities).  

Changing the relative price of work 

Boosting employment could be achieved by changing the relative returns to a worker between being active or inactive in the labor market. My argument is this can be implemented by three policy changes or strokes of the pen that mainly require political consensus, not additional money.   

• The first policy change could be initiated by the Minister of Finance. He can lower the entry tax rate of the personal income tax from 18% to, say, 5% or increase the threshold at which a citizen starts to pay the personal income tax. This is the East Asian model described above. While the benefit of this action is evident for low-income workers (they will take home more money), the costs will be minimal to the government as South Africa’s top decile contributes almost 80% of the personal income tax’s revenue .  
• The second policy change, which may be more controversial and politically charged, will be for the authorities to modify existing social transfers to encourage poor workers to enter the labor market, including through reduced transport costs. A suggestion would be to replace (at least partially and for those ready to engage in work) the Social Relief Distress grant (about $26 per month), which was introduced as a temporary protective measure during COVID-19, by a direct subsidy that will help low-income workers keep more money in their pockets. The authorities could distribute a voucher through a phone application or an electronic card that beneficiaries will use to cover part of their commute costs. The amount of the subsidy could be adjusted to make the reform revenue-neutral for the government.  
• The third policy change will be to facilitate additional job opportunities closer to the home of low-income workers—automatically reducing transport costs. This could be achieved by making it easier for existing small businesses to grow and operate, and for new ones to get started. Ecuador, for example, recently introduced a new type of company modality (“ Simplified Corporation Form ”) available on a digital platform, leading to the creation of 43,000 companies in less than three years. Of course, the development of (small and micro) enterprises and self-employment—the main source of jobs in underserved areas—requires additional measures such as improvement in infrastructure, better access to finance, and skills, but this could be a starting point. 3  

Longer-term measures are needed to further enhance the mobility of poor workers 

These short-term solutions can be attractive because they will encourage poor people to look for jobs and self-employment opportunities by making the relative price of labor more attractive in South Africa. They will also send an immediate signal about the government’s willingness to help disadvantaged workers to get more money in their pockets. However, in the longer run, the country’s ability to generate jobs will be largely determined by workers’ mobility, especially in urban areas where three-quarters of the labor force is concentrated today. The overhaul of the urban public transport systems, which are notoriously deficient, and the development of new housing communities closer to industrial and business centers, will therefore have to be in the mind of every policymaker who wants to address the unemployment challenge in South Africa.   

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To reduce South Africa’s unemployment, make work more attractive

Jacques morisset.

Originally published by  Brookings and Business Day (South Africa) October 13 and 10, 2023

At over 30%, unemployment is South Africa’s biggest contemporary challenge. Of course, there are diverse reasons behind the incapacity of the South African economy to provide sufficient jobs for its working population but allow me to focus on one: limited financial incentives for a poor South African to look for employment. The key question in South Africa is not why people are unemployed, but rather why they should work.

The financial incentives to work are low

To answer this question, I simply calculate how much money a typical South African worker (Dumisani) entering the formal labour market is expected to bring home in comparison with a Vietnamese worker (Dung). In our example, let us focus on taxes and transport costs (Figure 1). This comparison demonstrates that a low-income worker in South Africa has realistically few incentives to work or at least much less than a worker in Vietnam, a country with rapid job growth.

For the same gross salary, a low-income South African worker will get less than half the money in his pocket than a Vietnamese worker

For the same gross salary of $1,000 per month (approximately R19 140), Dumisani keeps in his pocket less than half of the money that Dung would because of higher taxes and transport costs. Unfortunately, Dumisani is not an exception as the personal income tax is set at 18 % for those earning up to about $1000 per month in South Africa, while it is only 5% (up to $215 / R4115), 10 % (between $215 and $430 / R4115 and R8231), and 15% (between $430 and $760; R8231 and R14548) in Vietnam. The personal allowance, which can be deduced from the tax payment for a single worker, is also slightly lower in South Africa ($400 vs $475; R7657 vs R9093). Other East Asian countries, like Indonesia and Malaysia , also have personal income taxes with lower entry rates than South Africa.

South African workers like Dumisani are also heavily penalized by transport costs due to long commutes between townships and industrial/businesses centers, as a result of the legacy of Apartheid era spatial planning. Two economists from the Harvard Growth Lab ( Shah and Sturzenegger ) estimate that the average transport costs for those who are employed in South Africa is equal to 57% of net wages when time to commute is accounted for. According to their calculations, transport costs could exceed 80 percent for the lowest quintile of workers.  In Vietnam, the same cost is estimated at only 10% of net wages because of shorter distances and more competitive modes of transport, including motorcycles.

In his decision to work, Dumisani will consider not only how much he will earn but also the amount of money that he could have expected from the government if he was not working. Like many low-income families, he or a member of his household would have qualified for a form of social transfers (grants/subsidies) distributed by the government. Today, it is estimated that over half of households are receiving money in one form or another from the State in South Africa. When becoming active in the labour market, Dumisani could lose some of these social benefits, including the unemployment insurance, the unallocated grants for low-income households (e.g., the COVID-grant), and the provision of free public services (electricity, water) to “indigent” households. By contrast, Dung is unlikely to receive any transfers from the government as social support in Vietnam is limited to few specific groups (war heroes, people living with disabilities).

Changing the relative price of work

Boosting employment could be achieved by changing the relative returns to a worker between being active or inactive in the labour market. My argument is this can be implemented by three policy changes or strokes of the pen that mainly require political consensus, not additional money.

• The Minister of Finance could initiate the first policy change. He can lower the entry tax rate of the personal income tax from 18% to, say, 5% or increase the threshold at which a citizen starts to pay the personal income tax. This is the East Asian model described above. While the benefit of this action is evident for low-income workers (they will take home more money), the costs will be minimal to the government as South Africa’s top decile contributes almost 80% of the personal income tax’s revenue .
• The second policy change, which may be more bolder and require concerted political will, would be for the authorities to modify existing social transfers to encourage poor workers to enter the labour market, including through reduced transport costs. A suggestion would be to replace (at least partially and for those ready to engage in work) the Social Relief Distress grant (about US$18.5 / R350per month), which was introduced as a temporary protective measure during COVID-19, by a direct subsidy that will help low-income workers keep more money in their pockets. The authorities could distribute a voucher through a phone application or an electronic card that beneficiaries will use to cover part of their commute costs. The amount of the subsidy could be adjusted to make the reform revenue neutral for the government.
• The third policy change will be to facilitate additional job opportunities closer to the homes of low-income workers – automatically reducing transport costs. This could be achieved by making it easier for existing small businesses to grow and operate, and for new ones to get started. Ecuador, for example, recently introduced a new type of company modality, (“ Simplified Corporation Form ”) available on a digital platform, leading to the creation of 43,000 companies in less than three years. Of course, the development of (small and micro) enterprises and self-employment – the main source of jobs in underserved areas--requires additional measures such as improvement in infrastructure, better access to finance, and skills, but this could be a starting point. This simple administrative change could be accompanied by targeted financial support and training programs as implemented in many low- and middle-income countries with extensive positive impact evaluation evidence.

Longer-term measures are needed to further enhance the mobility of poor workers

These short-term solutions can be attractive because they will encourage poor people to look for jobs and self-employment opportunities by making the relative price of labour more attractive in South Africa. They will also send an immediate signal about the government’s willingness to help disadvantaged workers to get more money in their pockets. However, in the longer run, the country’s ability to generate jobs will be largely determined by workers’ mobility, especially in urban areas where three-quarters of the labour force is concentrated today. The overhaul of the urban public transport systems, which are notoriously unreliable, unsafe and largely unregulated in the case of the taxi industry; and the development of new housing communities closer to industrial and business centers, will therefore have to be in the mind of every policymaker who wants to address the unemployment challenge in South Africa.

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Explain 4 Strategies To Overcome Unemployment In South Africa

• Mar 01, 2024

Overcoming Unemployment in South Africa: 4 Effective Strategies

Introduction

Unemployment remains a persistent challenge in South Africa, with a staggering unemployment rate of 32.9% in the second quarter of 2022. This alarming statistic translates to millions of South Africans struggling to find work and secure a decent livelihood. Addressing unemployment requires a multifaceted approach that tackles the root causes and provides sustainable solutions. This article explores four effective strategies to overcome unemployment in South Africa, supported by facts and evidence.

1. Enhance Education and Skills Development

• South Africa has a significant skills gap, with many employers struggling to find qualified candidates.
• The unemployment rate among youth (15-34 years) is particularly high, at 46.3%.
• Invest in quality education and training programs that align with industry needs.
• Provide vocational training and apprenticeships to equip individuals with practical skills.
• Promote lifelong learning and upskilling opportunities to keep workers competitive.

2. Foster Entrepreneurship and Small Business Development

• Small businesses create the majority of new jobs in South Africa.
• However, many entrepreneurs face challenges accessing funding and support.
• Provide financial assistance, mentorship, and training to aspiring entrepreneurs.
• Create incubators and accelerators to nurture small businesses and foster innovation.
• Reduce regulatory barriers and streamline business registration processes.

3. Promote Labor Market Flexibility and Job Creation

• South Africa’s labor market is characterized by rigid regulations and high labor costs.
• This discourages businesses from hiring and expanding.
• Implement flexible labor laws that allow for part-time work, internships, and temporary employment.
• Reduce payroll taxes and other labor costs to make hiring more affordable for businesses.
• Encourage investment in labor-intensive industries that create employment opportunities.

4. Address Structural Challenges

• South Africa’s economy is heavily dependent on a few key sectors, such as mining and tourism.
• Economic inequality and poverty contribute to unemployment and social unrest.
• Diversify the economy by promoting growth in new industries and sectors.
• Address income inequality through progressive taxation and social welfare programs.
• Invest in infrastructure and public works projects to create jobs and stimulate economic activity.

Overcoming unemployment in South Africa requires a comprehensive and collaborative approach that addresses both the immediate challenges and the underlying structural issues. By implementing these four strategies, the government, businesses, and civil society can work together to create a more inclusive and prosperous society. Enhancing education and skills development, fostering entrepreneurship, promoting labor market flexibility, and addressing structural challenges will empower South Africans to secure meaningful employment and contribute to the country’s economic growth.

• # Strategies
• # Unemployment

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Tackling youth unemployment: What works, what doesn't

Youth unemployment is one of South Africa’s most intractable challenges, made worse by COVID-19. Prior to the pandemic the unemployment rate (including people who had given up looking for work) was just under 70% for people aged 15 to 24 .

A year later the rate had increased to 74% – despite government investments. So it is crucial to understand what interventions are working. But how do we evaluate whether youth employment programmes are successful, particularly when unemployment is caused by the structure of the economy ?

The obvious answer, of course, is whether a programme results in a young person getting employed.

This is logical and easy to measure. It can easily be linked to the release of funding to programmes. And it allows for programmes to be compared. This was done in a systematic review of 113 programmes internationally .

However, as we have explored in several recent studies, there are a number of drawbacks to relying solely on job placement as an indicator of successful intervention. Doing so misses out on outcomes that are equally important, or more so, amid high structural unemployment.

Together, these studies show that job placement alone is an insufficient goal and measure of the success of youth employability programmes.

These lessons are particularly important in economies that have been severely affected by the COVID-19 pandemic, where youth employment recovery will take time.

Inadequate measure of success

We make this argument based on several studies. The first looked at long-term employment outcomes of 1,892 youth between 18 and 25 who participated in youth employability programmes over the period 2017-2018. These are programmes run by NGOs, business and the state. They typically include technical and soft skills training.

The proportion of participants who found jobs and stayed in them over time was just 28% – somewhat better than a matched sample from the quarterly labour force survey data , but still low. But we also found evidence that programmes had other important outcomes. These included a continued positive orientation to the labour market, and improved self-esteem and self-efficacy – important attributes for managing the protracted transition to work in a low growth economy.

The second involved analysis of the quarterly labour force survey and general household survey data to understand the nature of young people not in employment or in education and training. It found that while many such youth have never worked, a significant portion find themselves in and out of work without making much longer-term progress.

The third study draws together several qualitative studies conducted in the past 10 years. It shows that young people are frustrated by the constant cycle of finding and taking up training and employment opportunities, without making progress towards a longer-term career.

Together, these studies show that job placement alone is an insufficient goal and measure of the success of youth employability programmes. Four reasons for this argument emerge from these studies.

First, job placement says more about demand than supply. A young person’s ability to find a job doesn’t depend only on their skills but also on whether the labour market is creating sufficient demand for employees. No matter how well a programme trains and supports a young person, if there are limited jobs, young people are unlikely to be employed.

Second, if a programme is getting young people into jobs even though job numbers are not growing – as in South Africa – these placements may be at the expense of other work seekers.

Individual programmes can get people into jobs while the overall youth unemployment rate stays stagnant or rises. In the context of a rapidly contracting economy in the COVID-19 era , this is a particularly important argument against job placement as the only measure of a programme’s success.

Third, using this single indicator takes attention away from longer-term pathways towards sustainable livelihoods. Many jobs in South Africa, especially at entry level, are insecure, part time or casual. There’s a risk of disregarding whether a job is decent and has prospects for learning and career development.

Young people typically do not stay in jobs . This is either because the job is not a good fit or is for a short term only. Other barriers, such as transport costs, also account for why they are unable to stay in jobs.

Qualitative and quantitative evidence shows that young people find jobs that are typically short lived, before having to look again for their next placement. Policymakers should consider whether these short term experiences add up to something longer term – or there’s a risk of perpetuating the cycle of underemployment.

Finally, and perhaps most importantly, evaluating programmes on the basis of job placement alone underestimates the multidimensionality of poverty . Evidence repeatedly shows how many barriers and challenges young people face as they leave the education system and begin to find their way towards a job, and perhaps even a career.

Evidence repeatedly shows how many barriers and challenges young people face as they leave the education system and begin to find their way towards a job, and perhaps even a career.

These barriers are not only related to the labour market or education system. They also include issues such as food insecurity, income poverty, and care responsibilities , among others. Each of these limit the ability of young people to look for work.

These interrelated challenges influence young people’s ability to take up training or job opportunities.

Taken together, these challenges require far more intensive support than simply training and placing a young person in a job.

Alternative approaches

It is crucial that funders, policy makers, and programme developers invest in more intensive support that can help young people meet the challenges they face in seeking work. They must also insist on measures beyond job placement as indicators of success. International evidence bears this out. It shows that across 113 programmes reviewed, multidimensional programmes that seek to provide more comprehensive support to youth are more effective than those that offer training only. They are particularly successful when they target the most vulnerable youth.

Further, our research recognises the crucial contribution such programmes play in keeping young people connected to opportunities, and reducing social exclusion and social drift. This is when young people become increasingly disconnected from the labour market, training opportunities and positive social inclusion, which in turn can have negative consequences on mental health.

Given this evidence and the fact that South Africa is facing a stagnant economy for some time, it is crucial that funders, policy makers and those working on youth employment interventions evaluate and invest in programmes on the basis of their ability to keep young people positively oriented towards the labour market. The programmes should help improve their employability, even if the young participant is not yet able to find an actual job.

Outcome indicators that can more adequately measure these factors include enhancing job search resilience, promoting self-esteem and self-efficacy, and reducing discouragement .

There are ample reasons to move away from evaluating employability programmes on the basis of employment outcomes alone. Rather, a range of indicators should be used to track whether young people remain engaged, believe in themselves and keep trying to find a job. This, while developing the personal attributes that will make them attractive to future employers.

Each of these outcomes is more difficult to measure than a simple count of job placements. But it’s not impossible.

Lauren Graham, Associate professor at the Centre for Social Development in Africa, University of Johannesburg, University of Johannesburg; Ariane De Lannoy, Senior Researcher: Poverty and Inequality Initiative, Southern Africa Labour and Development Research Unit, University of Cape Town, and Leila Patel, Professor of Social Development Studies, University of Johannesburg.

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Millions of young South Africans are without jobs: what are the answers?

Director & Professor, Stellenbosch University

Senior lecturer in Strategy and Sustainability, Stellenbosch University

Professor of Economics and Development Finance, Stellenbosch University

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African countries are experiencing an unprecedented level of unemployment among young people. The unemployment numbers are expected to increase given the booming youth population in Africa.

Not only are more young people without jobs, the vast majority are employed in the informal economy. The International Labour Organisation puts the proportion of 15-24 year olds employed in the informal economy in the world at 95% in 2018. The proportion in sub-Saharan Africa is in the same ballpark.

If not arrested, this situation presents a ticking time bomb with adverse political and socioeconomic consequences.

The problem is particularly acute in South Africa. World Bank statistics show that in 2019 the youth unemployment rate in South Africa stood at 58%, which is one of the highest in sub-Saharan Africa. For South Africa , the unemployment numbers are expected to increase. Over 60% of the unemployed at the start of 2020 were aged 15-34.

The South African economy has consistently underperformed in the past decade, with growth in real GDP per capita declining since 2011. While South Africa experienced political emancipation in 1994, the population still suffers from high inequality. The country’s GINI coefficient stood at 0.63 in 2015 – one of the highest in the world.

South Africa is desperate for a more dynamic, employment intensive and innovative growth trajectory – even more so after the pandemic of COVID-19.

A sustainable and inclusive economic recovery that guarantees decent jobs will require an integrated response from policy makers, in partnership with the private, academic and community sectors.

We argue that promoting entrepreneurship has a role. But the data show that South Africa needs to step up entrepreneurship development for it to catalyse youth employment.

Joblessness and education

Unemployment is not limited to those with basic or lower levels of education. The trend of unemployed young people with tertiary education is also on the rise. According to the 2021 World Bank World Development Indicator the percentage of the labour force with an advanced level of education that is unemployed rose from 3.7% in 2007 to 14% in 2019.

Gone are the days when a university graduate was guaranteed a job.

A gender gap is also evident in the unemployment figures among people with advanced education. The unemployment rates of 2.3% in 2007 and 12% in 2019 for males with advanced education were lower than those of their female counterparts, which grew from 4.7% to 15%.

This status risks long-term scarring effects for young people along with increases in informal working and social isolation .

Rising unemployment has a severe effect on the wellbeing of families, in terms of hunger and mental health. According to research done at the University of Stellenbosch, roughly one in five (18%) families reported someone going hungry at the end of 2020, compared to 14% (one in seven) in 2018. At the same time, a recent study found that a 1% increase in youth unemployment led to a 1.6%-1.8% increase in murder crimes.

The already dire situation has been compounded by the COVID-19 crisis with its adverse economic and labour market fallouts. According to Statistics South Africa , the economy is still 2.7% smaller than it was in the first quarter of 2020 before the COVID-19 pandemic started.

And evidence suggests that the impact is disproportionately affecting young people with many more losing their jobs, or being driven into the informal sector.

• Entrepreneurship

Entrepreneurship has been cited as a key lever to transform local and global communities and societies.

We agree that entrepreneurship has a major role in promoting innovation, improving productivity and developing a business culture. And, importantly, it has the potential to create employment.

But data from the Global Entrepreneurial Monitor , coordinated by the University of Stellenbosch Business School , indicate that South Africa’s Total Early-Stage Entrepreneurial Activity between 2001 and 2016 was below average compared to most other similar countries.

Research shows that this measure has dropped below half that of the more entrepreneurial economies.

This suggests that South Africa isn’t doing enough.

A greater focus on entrepreneurship would permit the development of more enterprises to formalise many aspects of the South African economy.

Having said that, the evidence from across the world shows that entrepreneurs do not always create jobs. Indeed, research shows that many entrepreneurs are sole traders and involved in activities with limited potential to create employment.

Put simply, South Africa needs entrepreneurs that create jobs rather than simply setting up informal stores (known as spaza shops, which number more than 100,000 in the country).

South Africa should encourage entrepreneurship with three characteristics:

social entrepreneurship. This is the kind that addresses issues such as inequality, healthcare, hunger and environmental sustainability. These are based on business models that create tangible economic value at scale.

entrepreneurship that embodies the Schumpeterian idea of creative destruction – developed by Austrian political economist Joseph Schumpeter , the idea is that inferior solutions get replaced (partly or completely) with new products, services and business models.

entrepreneurship that unlocks multiplier effects for other small businesses to create employment. This would include fintech like Yoco , M-PESA and JUMO .

The challenge for policy makers is to understand, develop and nurture the support that helps entrepreneurs develop. And enables them to move on to become employers and creators of jobs as well as innovating products and services.

For innovative businesses to thrive, effective and supportive environments have to be created. This should include access to resources, such as capital or knowledge and a market for their innovation.

These supportive environments require an educational system that infuses intensive technical skill-based vocational education complemented with practical, innovative training at all levels. This would give young people the foundation, skills and mindset they need to become entrepreneurs.

Access to finance by youth enterprises and entrepreneurs is critical. But this needs to be tailored to their needs. Examples include loan guarantee schemes, direct loans and equity as well as structured finance.

There are signs of some progress. For example, the African Development Bank is developing Youth Entrepreneurship Investment Banks to finance youth entrepreneurship and innovation in Africa.

And the South African government has introduced programmes and schemes that provide finance for enterprises including those owned by young people. These could be strengthened.

Mentorship for young entrepreneurs is also needed. As is the creation of incubators and innovation hubs where young entrepreneurs can experiment with business ideas and learn from others.

Ultimately, critical capacity development in the field of entrepreneurship is needed. For South Africa this would include capacity in research, training, and advice with the aim to boost dynamism, growth and inclusion through entrepreneurship for more members of society.

• Unemployment
• Youth unemployment
• Economic growth
• Gender inequality
• Gini Coefficient
• South Africa
• Peacebuilding
• Informal economy
• SouthAfricajobs
• AfricaPopulationChallenge

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Home — Essay Samples — Economics — Unemployment — Exploring the Effects of Unemployment in South Africa

Exploring The Effects of Unemployment in South Africa

• Categories: South Africa Unemployment

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Words: 581 |

Published: Sep 1, 2023

Words: 581 | Page: 1 | 3 min read

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Individual struggles and aspirations, familial strain and disintegration, community disadvantages and social tensions, socioeconomic ramifications and national progress, conclusion: a call for comprehensive solutions.

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