Wage a smart war on youth unemployment

The recent Budget Speech once again highlighted the pressures on our economy and in particular, the need to reduce youth unemployment and transform our high number of young people into a competitive advantage.

In South Africa, around 46% of young people aged 15 to 24 are out of work. It’s one of the highest rates in the world. The government clearly sees the pressing need for action in this area as it's allocated more than 20% of national expenditure to education, including R23bn to development of educational infrastructure.

While this is admirable and necessary, addressing youth unemployment cannot and should not be left to "the powers that be" and we know that some of the finest minds in business, civil society and academia are also grappling with the issue.

For example, how to tackle youth unemployment was the question posed to the razor-sharp undergraduate entrants in this year's Nedbank and Old Mutual Budget Speech Competition, now in its 43rd year.

The judges agree that this year's entrants were of a particularly high standard: insightful and incisive. Overall winner Josh Budlender believes that sustained inclusive economic growth and investment are needed to lower youth unemployment, but he points out that there are a number of supplementary measures that would accelerate their impact.

A youth wage subsidy that would reward employers who hire low-skilled workers ages 18 to 29 who earn below the tax threshold would provide young people with access to the working world. It would help address the Catch-22 that sees young people, even talented graduates, being unable to get work because they have no experience and unable to gain experience because they can't get work.

Mr Budlender also refers to the structural mismatch between the skills the modern South African economy demands, and the skills it supplies. That ratio has grown from around 35:65 between 1970 and 1975, to 53:46 between 2000 and 2002

He says: "The causes of SA youth unemployment are a combination of deficient demand for labour, due to the increasingly skills-intensive orientation of the SA economy, and substandard supply, caused by the emergence of low-skilled youth."

The National Treasury has found that unemployed young people have three times more chance of finding work if they have previous work experience, and that introducing the subsidy would enable around 178 000 young people to have work.

Mr Budlender acknowledges that the youth wage subsidy is not without its flaws, but argues that it will be effective when combined with efforts to promote the growth of the informal sector. He acknowledges that informal employment is generally a poor substitute for work in the formal sector, but that it's better than no work at all.

Runner-up in the competition, Liberty Bapai, suggests several actions to address youth unemployment, including early education on career choices and mandatory work experience in all tertiary institutions. Mr Bapai notes that Chile, India, Australia and Belgium all have minimum wages for teenagers below the adult rate. Properly regulated, this could give useful work experience to young people.

Any and all of these measures carry a cost, but none is as expensive as doing nothing about what Higher Education Minister Blade Nzimande calls a ticking time-bomb.

Youth unemployment is a focus of the National Development Plan (NDP) and a number of efforts are underway in business to facilitate SMMEs. One such example is Old Mutual's Masisizane Fund, which helps create black-owned small enterprises, especially in rural and peri-urban areas.

Moneyweb's Marc Ashton writes that at a recent MyStartupSA event, the initiative's founder Andile Khumalo pointed out that black would-be entrepreneurs still have access to far less start-up finance from family and friends than their white counterparts. Imbalances such as these need to be urgently addressed.

The postgraduate category of the Nedbank and Old Mutual Budget Speech Competition asked entrants to examine the issue of energy security. It's worth noting that one of the proposed remedies, investing massively in renewables, would have the added benefit of generating employment on a significant scale.

We have a number of powerful remedies within our reach and we must take them.