The youth unemployment crisis – the impact on individuals and the economy

By Bryden Morton and Chris Blair

As young men and women, nearing the end of our schooling, we often feel that our lives are in front of us as we begin to make plans for our future. Some will have the opportunity to continue their education, others may want to start the job market early, others may take a break. The exuberance of youth drives us towards our life goals, however, there are several realities in the job market that impact our ability to achieve those goals.

South Africa has historically struggled with high unemployment rates and unfortunately these rates have deteriorated a bit over the past decade. Stats SA’s Quarterly Labor Force Survey (QLFS) provides unemployment data going back to 2008 and the labor market trajectory in South Africa is alarming, as shown in the figure below:

The unemployment rate fell from 21.5% in Q4 2008 to 34.4% in Q2 2021. By focusing on the two youngest age categories (15 to 24 and 25 to 34), we have seen the unemployment rate (over the same period) increase from 44.9% to 64.4% and 24.9% to 42.9% respectively as shown in the table below:

The unemployment rate for those under 35 is of concern not only because of its impact on these people to earn income, but also because of its indirect impact on the economy in general. This article will focus on two specific examples.

How does this impact the likelihood that a person will have sufficient income to retire?

How does this impact skills development in the economy?

The first impact of unemployment is that a person cannot earn an income to support himself and his dependents. In terms of retirement, this means that the person cannot support themselves in the future as they cannot start any form of retirement savings until later in life. The unemployment data above suggests that only a small proportion of the population under 35 has the capacity to start saving for retirement. The nature of these retirement savings vehicles is that they require long periods of time to allow the effects of compound growth to add up much more significantly over the last 5 years of the investment vehicle compared to the 5 first years of the investment vehicle. By starting later in life, it reduces the potential size of this fund and therefore the impact of compound growth over time. Ultimately, this means that the burden on the state in terms of caring for the elderly will be higher if citizens do not have the opportunity to start saving for their retirement earlier (due to the high rate of retirement). high youth unemployment).

The second impact to consider is how the high youth unemployment rate affects skills development in the economy. This point is somewhat of a self-fulfilling prophecy in that when an economy has a high unemployment rate, it means that there are a large number of potential employees looking for few jobs. This means that employers will often have a choice of high caliber employees (relative to the job requirements), making it more difficult for an inexperienced employee to find an entry level job where they can gain experience. (and the cycle continues). This means that fewer young people are offered professional development opportunities and therefore professional development only takes place later in their career than is optimal. This has a ripple effect in the organization and creates pressure on those who have received early career development opportunities while those who are new to the workplace are catching up on development that they have missed. This makes it more difficult for an organization to appoint an entry level worker when more developed employees are available and willing to work for the same pay.

The picture painted in this article is of an economy in desperate need of tackling broader unemployment issues, but more specifically, youth unemployment. The problems associated with youth unemployment affect not only the burden of state social spending (in the form of pension benefits) but also the country’s productivity (as employees thrive later in life due to lack of entry-level employment opportunities). The exact intervention to be used to address this youth unemployment crisis is beyond the scope of this article, however, what is certain is that the status quo is unsustainable.

Bryden Morton is the Executive Director of 21 Century

Chris Blair is the CEO of Leadership and Sustainability at 21 Century

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