The solution to South Africa’s unemployment problem: pay people less

Despite its many achievements in more than two decades after apartheid, South Africa is in ‘deep trouble’, as unemployment and poverty rates remain high.

This is according to executive director of the Centre for Development and Enterprise (CDE), Ann Bernstein, who believes that South Africa’s young democracy is threatened by the political, social, and economic consequences of low growth, mass unemployment, poverty, and inequality.

On Thursday, the World Bank cut its forecast for South Africa’s economic growth for 2016, to 0.4%, from 0.8% in April.

The World Bank forecast economic growth of 1.1% for 2017 and 1.8% in 2018.

Bernstein has led a project at the independent policy research and advocacy organisation to identify national priorities for accelerating economic and employment growth in the country.

The CDE has called for a fundamentally new approach that is urban-led, private sector-driven, enabled by a capable state, and aimed at mass employment.

At a recent gathering at the Hudson Institute, Bernstein highlighted three facts ‘that really matter’ to the country at present:

  • Too many South Africans are poor – anywhere between 18-27 million South Africans live on very little money every month.
  • Too many South Africans are unemployed.
  • Too few South African adults have a school leaving certificate of any value.

“We have a structural employment problem, that in our view is caused by government policy – because of a poor education system caused by the legacy of apartheid, South Africa has a low skill workforce,” Bernstein said.

“The more adjectives you put in front of jobs, the fewer jobs you are going to get.”

The policy executive said that the country should create jobs for the workforce it currently has – ‘not the one you wish you had or you fantasize you had, but the one you actually have’.

Read:  How a R4,000 South African minimum wage compares to the rest of the world

“We need to be a labour intensive economy as possible,” Bernstein said, adding that the country can be internationally competitive in low-skill manufacturing, which would speed up job creation.

“We have the notion that South Africa should only have decent jobs,” Bernstein said, citing a former finance minister who said: “The more adjectives you put in front of jobs, the fewer jobs you are going to get”.

“We are a more capital intensive economy than we should be – we have millions of people who, through no fault of their own, don’t have skills,” the policy expert said.

“The country needs high growth, but it also needs to be much more labour intensive. We need to change a range of legal regulations to enable private organisations to employ people for low wages – but we would argue that a low wage is a lot better than no wage at all.”

Bernstein noted that for education, South Arica often comes last in a range of international tests relating to maths and science.

“We need a competitive market economy, and a competitive state that understands markets and can regulate them for competition and growth.”

Bernstein said that raising minimum wages will not tackle the deep structural deficiencies in South Africa. “Setting wages too high will mean unemployed people’s prospects of gainful, salaried employment would be reduced yet further.”

Government is set to reveal the findings of its report on a minimum wage in October. Reports claim that business want a sum of R1,800 per  month, while labour have called for between R3,500 and R4,500 or higher.

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The solution to South Africa’s unemployment problem: pay people less