Unemployment Crisis in South Africa Assessment Answer

Introduction

Unemployment Crisis in South Africa: A Deepening Predicament

South Africa has been enduring a persistent as well as multifaceted crisis emanated due to unemployment, that has impeded its socioeconomic landscape to a great extent.

The gravity of this impediment is appalling, since South Africa’s experience with unemployment conundrum is primarily characterized by two distinct definitions. In consonance with the standardized definition, which generally reflects populace seeking employment, the nation's unemployment rate is around a depressing 34.9% by the end of 2021's third quarter (Adeleye & Eboagu, 2019). On the contrary, the more inclusive and refined definition, which defines percentage of populace who have given up on seeking employment, depicts an even harrowing representation of 46.6% (Bekun, Emir, & Sarkodie, 2019). Apparently, these numbers may seem mere statistics; however, in reality, these number paint the essence of current employment landscape for millions of South Africans, aside from the disturbing ramifications of such high unemployment which resonate throughout the nation.

The historical backdrop of South Africa's high unemployment cannot be understated. The apartheid’s repercussion attributed with systemic discrimination scarred the national economy and its workforce alike. This trend lingered until 1994, the profound implication of which impeded progress towards opportunities that fosters equitable employment. The manufacturing sector, which generally act as harbinger of immense source of employment for low-skilled workers, has stagnated between 2010 and 2018, with less than 1% annual growth rate (De Lannoy, Graham, Patel, & Leibbrandt, 2020).

Figure 1: Representing rate of unemployment across demographic (Jubane, 2020).

The core repercussion of this predicament falls inordinately on certain demographics. For instance, Black African women grappled with 41% unemployment rate. Young people aged 15-24 as well as 25-34 stumbled upon dire circumstances, where rate of unemployment experienced a steep incline to 64.4% and 42.9%, respectively (Geza et al. 2022). Aside from hindering economic prosperity, these statistics propelled discontent and social unrest withing the nation.

The significance of delineating a solution towards South Africa's unemployment crisis is not only a matter of social justice, but economic stability would inherently translate into political harmony in the region. Hence, it is imperative to remain steadfast in determining a way to fuel sustainable economic growth, that promotes social cohesion through equality in terms of job creation, that potentially stabilizes the nation.

Background: A Complex Interplay of Demand and Supply Factors

Unemployment in South Africa is a sophisticated quandary which is defined by a plethora of factors which falls into a continuum spanning both the demand and supply sides of the labour market. For the sake of gaining insights into the crisis, it is imperative to comprehensively gain cognizance by dissecting the dynamics at play within the context of economic demand and labour supply, which are depicted as follows:

• Demand-Side Factors
• Economic Slowdown: One of the pivotal demand-side aspect that conducing unemployment in the nation is the sluggish economic growth. Economic stagnation breeds job evaporation, since the brunt end of the conundrum falls upon small and medium-sized enterprises, which struggle to expand their business horizon, which promotes hiring. Two crucial hindrances, the 2008 global recession, coupled with the recent COVID-19 pandemic, immensely exacerbated this impediment, subsequently leading towards long-lasting ramifications on fostering job creation (Khobai, 2021).
• Foreign Investment (FI): The influx of foreign investment propels economic growth seamlessly, which is a remote concept for SA. Due to the fact that FI inconsistency fuelled this conundrum, ever since it took a nosedive of 39% in 2020 (Mkombe et al., 2021). This is a pivotal factor, since the sheer dearth of foreign capital extensively limits scope of nurturing businesses and broadening the opportunities of job prospects for the labour force.
• Skills Mismatch: The paradox of South Africa is quite challenging, since the demand for skilled labour is high, contrarily, there exists a significant skills mismatch. Owing to the fact that even graduates, grapples with the staggering unemployment rate when compared with other academic qualification levels, The reason being that their qualifications is not at all aligned with the prevalent trends of labour market's requirements. This gap hinders productivity thereby stagnating the economic growth further.
• Inequality: Economic disparities in a nation often cripples its growth to foster, where SA is not an exception, where the top 1% safeguards 55% more wealth compared to the remnant poorest 90% who only own a meagre 14%, thereby propelling unemployment (Mkombe et al., 2021).

Figure 2: Depicting rate of unemployment in SA in the last two years as per demand and supply side (Mseleku, 2022).

• Supply-Side Factors
• Educational Attainment: The number of graduates in South Africa is mind boggling in nature which theoretically should bolster the labour market. However, in reality, owing to extensive educational disparities, almost all these graduates are not well versed in the necessary acumen required to fuel the contemporary job landscape. This gap further exacerbates graduate unemployment.
• Youth Disengagement: Massive unemployment rate amidst youth, aged 15-24 and 25-34, is compounded by discouragement (Mseleku, 2022). Several youths are discouraged to seek employment as a consequence of dearth of job opportunities, resulting in surge of youth delinquency. This disengagement is a significant supply-side issue, since it depicts wastage of true potential in terms of human capital.
• Opportunities deficiency: Inadequate opportunities of employment and the dearth of economic policies that are inclusive in nature, impede the labour supply. Young people in SA grapples with the enduring conundrum to land employment, leading to a burgeoning "Not in Employment, Education, or Training" (NEET) population (Oyedemi & Choung, 2020).

Confronting the challenges emanating from sheer unemployment in SA necessitates an approach that is multifaceted in nature and comprehends the equation from both demand and supply-side perspective.

Unemployment in South Africa: Price Control and Elasticity

In a similar vein, the contribution of price control and elasticity is quintessential in this context, which are extrapolated as follows:

• Price Control:
• Wage Determination: Wage determination in SA can be coined as precursor of price control in the labour landscape of South African market. Unemployment is catapulted by minimum wage legislations aside from collective bargaining agreements, which further deteriorates the scope of employment. From an apparent vision, it would seem like that these measures are solitarily oriented towards making certain that fair compensation for work force prevail, while, in reality, these measures are detrimental to eradicating employment opportunities, especially for individuals who possess relatively lower acumen. Contrastingly, if the minimum wage is set relatively high, it may seem reasonable for the work force, but it would inherently crumble the prevalent SMEs infrastructure in SA, thereby leading to unemployment (Page, 2019).
• Labor Market Rigidities: Stringent regulations in terms of price controls breeds complications across labour market thereby rendering loss of job creation. Simultaneously, legislations oriented towards safeguarding employment rights an also enhance the challenging landscape for small scale businesses to adjust their workforce accordingly. This subsequently leads to evaporation of job prospects by employers, predominantly in sectors with high labour costs.
• Elasticity:
• Price Elasticity of Labor Demand: The notion of price elasticity is pivotal in terms of gaining cognizance concerning labour demand while deciphering the current circumstances of unemployment in SA. It defines the manner in which the demand is responsive for labour with respect to wage changes. Across labour market with elastic demand, even minute wage increment can result in substantial loss of employment, due to sensitivity of the employers. Conversely, inelastic labour market is attributed with employers who are less responsive to wage changes; hence, losses of employment is also a rare occurrence. SA's labour market exhibits a mix of both elastic and inelastic demand across diverse segments (Ranchhod & Daniels, 2020).
• Skill Mismatch: Elasticity’s contribution towards skill mismatch is also undeniable. In view of the fact that the labour market's demand for precise acumen often result in highly elastic or inelastic landscape. If candidates possess pertinent skills, that are in high demand (elastic demand), they are prone to be employed and vice-versa. This is particularly prevalent in SA, where the mismatch is vivid between the acumen graduates possess and the skills necessitated by the labour market.

Potential Microeconomic Solutions to Address South Africa's Unemployment Challenge

SA appalling impediments necessitates a multifaceted solution which is grounded upon microeconomic theory, which are depicted in the following segment:

• Augmenting Skill Relevance:

Human Capital Development: Investing in education as well as training regimes that satiate the current trends in the employment sector would necessarily translate into lessening the rate of unemployment. However, in order to accomplish it, it is imperative that the incumbent regime undertake the responsibility of augmenting the curricula across higher education institutions that solitarily emphasize practical acumen along with hands-on demonstration. Private institutions should also be incentivized to develop new courses that suit the prevalent market demands so that graduates can land jobs seamlessly (Saint Akadiri, Bekun, & Sarkodie, 2019).

• Advocating efficacy of Labour Market:
• Wage Flexibility: Inculcating wage-setting that is flexible in nature permits for variations in wages on the basis of productivity differences. Hence, small firms as well as large enterprises can hire young talents without feeling the need to displace experienced ones.
• Wage Subsidies: Broadening wage subsidy schemes to captivate firms by introducing cost-effective policies would motivate business to employ young talents. However, it is crucial to meticulously design and intricately monitor its implementation, lest these subsidies breed unintended consequences.
• Stimulating Private Investment:

Investment Incentives: Fostering a favourable ambiance to captivate investment through new policies that incentivize private sector investment, would allure foreign investment seamlessly. However, in this context, it is immensely imperative that incumbent regime resolves bureaucratic hurdles, since it discourage businesses to broaden their horizon and create jobs.

• Promoting Competition and Augmenting Market Efficiency:
• Advancing Competition Policy: Bolstering the regulatory framework for competition to curtail market consolidation and fortify market competitiveness. This endeavour can yield diminished input expenses for enterprises, consequently leading to reduced prices for consumers.
• Easing Regulatory Constraints: Identifying and eliminating superfluous regulatory hindrances that impede market efficacy (Zembe & Gratitude, 2020). The simplification of administrative processes and the reduction of bureaucratic impediments can invigorate entrepreneurial activities and facilitate market ingress, thereby fostering employment generation.
• Mitigating Youth Unemployment:
• Fostering Youth Training Initiatives: Pioneering specialized training programs tailored to equip young job seekers with pertinent skills. Such initiatives aim to bridge the transitional divide between education and gainful employment, facilitating a smoother integration of youth into the labour force.
• Expanding Youth-Specific Wage Subsidization: Broadening the scope of wage subsidies expressly designed to alleviate youth unemployment. These incentives can render the hiring of young workers more financially viable for enterprises, consequently diminishing the overall youth unemployment rate.

Conclusion

In essence, an inference can be drawn that South Africa's massive challenge in the form of unemployment necessitates a comprehensive microeconomic resolution. For the sake of practically addressing this impediment, the nation should concentrate upon skill relevance through practical education, aside from advocating efficacy of the labour landscape by incorporating flexible wage mechanisms as well as subsidies. This would inherently stimulate private investment and enhance market competition, to tailor interventions so that youth unemployment can be lessened. If the aforementioned microeconomic solutions are inculcated with due diligence, then the feasibility of South Africa to resolve its prevalent conundrum and transcend into a more inclusive and dynamic economy is inevitable in nature.

References:

Adeleye, N., & Eboagu, C. (2019). Evaluation of ICT development and economic growth in Africa. NETNOMICS: Economic research and electronic networking, 20, 31-53.

Bekun, F. V., Emir, F., & Sarkodie, S. A. (2019). Another look at the relationship between energy consumption, carbon dioxide emissions, and economic growth in South Africa. Science of the Total Environment, 655, 759-765.

De Lannoy, A., Graham, L., Patel, L., & Leibbrandt, M. (2020). Why is youth unemployment so intractable in South Africa? A synthesis of evidence at the micro-level. Journal of Applied Youth Studies, 3, 115-131.

Geza, W., Ngidi, M. S. C., Slotow, R., & Mabhaudhi, T. (2022). The dynamics of youth employment and empowerment in agriculture and rural development in South Africa: A scoping review. Sustainability, 14(9), 5041.

Jubane, M. (2020). Strategies for reducing youth unemployment in South Africa. Jubane, Marvelous, Strategies for reducing Youth Unemployment in South Africa (April 28, 2021).

Khobai, H. (2021). Renewable energy consumption, poverty alleviation and economic growth nexus in South Africa: ARDL bounds test approach. International Journal of Energy Economics and Policy.

Mkombe, D., Tufa, A. H., Alene, A. D., Manda, J., Feleke, S., Abdoulaye, T., & Manyong, V. (2021). The effects of foreign direct investment on youth unemployment in the Southern African Development Community. Development Southern Africa, 38(6), 863-878.

Mseleku, Z. (2022). From Workplace to Joblessness: The Determinants of Post-Internship Graduate Unemployment in South Africa. Academic Journal of Interdisciplinary Studies, 11(2), 330-330.

Oyedemi, T. D., & Choung, M. (2020). Digital inequality and youth unemployment. Communicatio, 46(3), 68-86.

Page, J. (2019). How industries without smokestacks can address Africa’s youth unemployment crisis. Foresight Africa: top priorities for the continent. Washington DC: Brookings Institution.

Ranchhod, V., & Daniels, R. C. (2020). Labour market dynamics in South Africa in the time of COVID-19: Evidence from wave 1 of the NIDS-CRAM survey.

Saint Akadiri, S., Bekun, F. V., & Sarkodie, S. A. (2019). Contemporaneous interaction between energy consumption, economic growth and environmental sustainability in South Africa: what drives what?. Science of the total environment, 686, 468-475.

Zembe, Y., & Gratitude, R. M. (2020). An investigation on the experiences, causes and consequences of unemployment amongst Graduate Youths in Ga-Kgapane, Limpopo Province of South Africa.

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