14 Jun 2022 by Marvelous Jubane, Market research assistant at sefa

Reducing youth unemployment in South Africa and worldwide

In this extract from his paper titled “Strategies for reducing youth unemployment in South Africa”, Jubane talks about macroeconomic and microeconomic policies that can be used to reduce youth unemployment in South Africa and worldwide.

Reducing youth unemployment in South Africa and worldwide

One of the root causes of youth unemployment is the structural shift in countries’ economies.

Over the years, economies changed from being labour-intensive to being technologically driven.

As a result, the structural unemployment caused by technological advancement has transformed many industries. The banking industry is a good example. Banks have now replaced human labour, such as some bank tellers with digital banking and self-service machines like ATMs.

Lauren Graham and Ariane de Lannoy, senior researchers at the University of Johannesburg and the University of Cape Town respectively, in their 2016 research paper titled “Youth unemployment: what can we do in the short run?”, cite that youth unemployment in South Africa has been caused by structural changes in the economy, the evolving nature of the labour market and mismatches within the education system.

On the one hand, all these factors have caused high demand for skilled workers, while on the other hand there is a cohort of young people who lack work experience.

But the skills mismatch means that the skills demanded by employers are misaligned to those learned by college and university graduates, therefore causing youth unemployment.

To address this unemployment issue, caused by the misalignment in skills demanded versus skills supplied, I propose considering macroeconomic and microeconomic policies that include demand-side (increase Aggregate demand or Gross Domestic Product) and supply-side (increase Aggregate supply or enhance human capital or skills) economic policies.

The demand-side economic policies that help to reduce unemployment include expansionary monetary policy which involves the reduction of interest rates to stimulate consumer spending and improve the disposable income of people in an economy.

Another demand-side economic policy is expansionary fiscal policy, which involves the reduction of Government tax such as Value-added tax, and an increase in Government expenditure in the form of building public infrastructure such as hospitals, roads for facilitating business activities, schools, and production factories to create employment opportunities and improve the standard of living for citizens.

Furthermore, supply-side economic policies that help to reduce unemployment include employment creation subsidies given by the Government to private companies to incentivise them to hire unemployed youth and equip them with skills. This skills training includes on-the-job training opportunities to help equip youth with skills and working experience, for example in-service training, internship, graduate and learnership programmes.

Entrepreneurship education and training is another microeconomic supply-side policy, which involves the education and training of youth in business management to help them become job creators instead of job seekers.

I also analysed employment changes per province using time-series data collected from the Quarterly Labour Force Survey published by Statistics South Africa starting from 2012 to 2018. The findings revealed that Gauteng, KwaZulu-Natal, and the Western Cape experienced the largest unemployment numbers, indicating that unemployment in South Africa is caused by geographical migration across provinces and people leaving their hometowns in search of job opportunities, causing over-supply of labour in provinces with big metro cities.

The remedy to this problem of geographical unemployment is for the government to build infrastructure and factories, and fund private companies so they can grow and establish company branches in other provinces to create more employment opportunities.

I analysed the trends in the education system (supply-side of the labour market) of South Africa by using data collected from the Department of Higher Education and Training database on the number of graduates per field of study.

The findings revealed that from 2012 to 2016 the number of graduates declined, indicating that some youth had dropped out of college and university.

Another finding is that most of youth graduated with qualifications in the fields of Education, Business, Economics, and Management sciences, as opposed to the scarce specialties of Mathematics, Science and Engineering, which are important in our technologically advanced world.

There is a need for the government to include entrepreneurial education and training in the high school and college or university curriculum, to transform the education system to become skills-based to help bridge the gap that has caused most youth to become jobless.

Lastly, in my first research paper I conducted a Statistical or Econometric regression analysis in EViews – statistical data analysis software – with youth unemployment being the dependent variable of the model.

The Econometric regression analysis revealed that inflation, Gross Domestic Product and national or Government debt influence youth unemployment, necessitating expansionary macroeconomic policies. This means that to reduce youth unemployment, there is a need for macroeconomic policies of an expansionary monetary and fiscal nature.

South Africa and other countries need to design an entrepreneurship policy to empower youth with skills to become job creators instead of job seekers.

Marvelous Jubane is a Market research assistant for sefa’s Strategy, Planning and Reporting Department. He is completing his master’s degree focusing on Local Economic Development, and his research and interests lie in developing strategies to reduce youth unemployment. He presented the research paper summarised here at the 2nd World Conference on Children and Youth in 2020 facilitated by The International Institute of Knowledge Management (TIIKM). The research paper has also been published on ResearchGate website and Google Scholar.

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