Phumlani M. Majozi, a senior fellow at African Liberty, writes for the FMF. Follow him on Twitter: @PhumlaniMMajozi.
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This article was first published on Mg.co.za on 31 March 2022
South Africa’s labour market needs urgent reform
This week, Statistics South Africa announced that South Africa’s unemployment rate rose to a record high 35.3% in the last quarter of year 2021. This was an increase of 0.4 percentage points from the previous quarterly unemployment rate. The expanded definition of unemployment rate is at 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 jobs anytime soon. Unemployment is one of the many crises experienced by South Africa in the democratic era.
People’s views on what causes our staggering unemployment differs across the different 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 – in contrast to those who think that government’s role in the economy must be limited in the economy.
The advocates of more government involvement want government to do ‘more’ to create jobs. Spend more, regulate more, own more. That is what they want. And that is perplexing because our government has been doing more of this over the past two decades, and we are here with astronomically high unemployment rates.
In politics, there are political parties that advance a view that we must follow the Venezuela socialist path. A path that has destroyed peoples’ livelihoods in Venezuela over the past two decades of Chavez and 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 unemployment crisis highlights South Africa’s fundamental problems with its labor market.
As already pointed out by researchers, we have a labor market that discourages rapid job creation. Why our labor market discourages rapid job creation is not rocket science. Ill-conceived public policy has been central to creating our 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 those jobless. It begins with us as citizens holding public officials accountable. Because we have the power to change the course of the country.
How we reverse these shocking unemployment problems must begin with the assessment of the country’s competitiveness. In this area, as assessed by reputable organizations, South Africa lags.
We must face the reality that we live in a globalized 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 be. Addressing the lack of competitiveness will help nurture our labor 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 labor laws that make it hard for business to operate effectively in the country.
If I were President of South Africa, my first attempt in creating a labour market that is conducive to rapid job creation, would be to scrap 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 South Africa.
Proposing to remove or removing 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 amongst the left-wing elite.
There is nothing anti-poor about creating opportunities for those who are jobless, to find jobs. The absence of minimum wage laws helps with creating those opportunities. Because with minimum wage laws, those who are jobless, but willing to work for a wage below a minimum wage, 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.