What if things don’t improve in South Africa?

A new report warns that, without an improved  labor market, only 40% of working-age South Africans coming into the jobs market will find work.

A report by the World Bank entitled South Africa economic update: jobs and South Africa’s changing demographics, said that taking advantage of its growing working-age population could help accelerate South Africa’s growth to 5.4% a year and double per capita incomes by 2030.

The report finds that the country is undergoing a profound demographic shift in which the share of its working-age population between 15 and 64 years has expanded substantially and will continue to grow for another five decades.

Since 1994, the working age population expanded by 11 million and comprises 65% of South Africa’s population of 54.9 million in 2015. The working age population will grow by another 9 million in the next 50-years.

As South Africa has not created enough jobs to take advantage of its growing working age population, only a little over 40% of its working age population have jobs.

Business-as-usual baseline scenario

The World Bank said that in a ‘business-as-usual baseline scenario’, the labor market’s ability to absorb new entrants remains constrained.

Labor-force participation remains low at its 2014 level of 57% and employment rate stagnates at about 43% of the working-age population. Unemployment persists at 25.1%.

The number of employed increases at the same rate as the working-age population, 0.76% a year, still faster than the growth rate of the total population (0.55% a year).

In the baseline, real GDP growth averages 3.7% a year and growth in real per capita incomes averages 3.1% a year over 2015–30.

The number of employed rises modestly from about 14.8 million workers in 2015 to 16.6 million by 2030.

“This implies that only about 40% of the 4.3 million increase in the working-age cohort over the next 15 years will find jobs.”

“Moreover, the high rates of youth unemployment imply that the economy is not only forgoing the benefit of the labor supply growing faster than the overall population, but also is missing the potential benefit that these new entrants have more years of schooling,” the report said.

Moreover, incomes do not rise enough to create space for a sharp increase in savings: savings as a share of GDP rise modestly from 14.5% of GDP in 2015 to just under 18.5% by
2030.

The report shows that real GDP growth would accelerate to 5.4% per year if:

  • In the next 15 years enough jobs could be created to absorb new entrants and lower the unemployment rate by three-quarters;
  • Vocational training could be used to retool the long-term unemployed to make them more attractive to employ; and
  • Education improved so new entrants to the workforce are better equipped for the modern workplace.

This would be enough to allow per capita income to double and extreme poverty to be virtually eliminated by 2030.

The report’s forecast for real GDP is at 2.0% in 2015, and envisages a slow strengthening to 2.4 percent in 2017.

But overall, growth in South Africa will remain largely below the average growth rate of 4.2% and 4.0% for Sub-Saharan Africa, in 2015 and 2016–2017, respectively.

Improvement in unemployment rates

Alternative scenarios

A ‘job-creation scenario’ sees the labor market improve considerably. Enough new jobs are generated not only to absorb all new entrants but also to reduce unemployment to the upper-middle-income country average of 5.8% by 2030.

The employment rate rises to 54% of the working-age population.

The ‘productivity-enhancing scenario’ would see the fall in unemployment from scenario 1 accompanied by more rapid gains in labor productivity, whose growth rates converge with the BRIC group average by 2030, implying a 30% higher average growth rate in labor productivity than in scenario 1.

The ‘accelerated educational attainment scenario’ would see the lower unemployment rate and faster labor-productivity growth of scenario 2, complemented by faster skills attainment by school graduates entering the working-age population.

In scenarios 1 and 2, educational attainment rates stay at current levels, but even then the share of workers with more than nine years of schooling rises as younger-age cohorts with more years of schooling than older cohorts cause the share of employed with more than nine years of schooling to rise from 61% in 2014 to 68% by 2030.

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What if things don’t improve in South Africa?