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Stellenbosch Working Paper Series No. WP18/2012


The persistently high unemployment rate has always been one of the most pressing socio-economic problems of the South African economy. There is a general consensus that unemployment is structural, as there is a mismatch between the skills demanded by employers for the available jobs and the skills supplied by the labour force seeking work. As there is an increase in demand for highly-skilled workers with the adoption of capital-intensive and technologically more advanced production processes, most of the unemployed are unskilled and not well educated. The unemployment rate is much higher amongst youths than amongst the older workforce. Also, youths are less likely to find employment and employed youths are relatively more likely to be retrenched during recessions due to their lack of experience. The announcement by the Finance Minister in the February 2011 Budget Speech that a youth wage subsidy will be implemented in 2012 was based on the hope that the subsidy programme would boost the labour demand for youths, and decrease youth unemployment. Hence, this paper first analyses the demographic and education characteristics of the youth labour force, employed and unemployed, using the 1995-2011 labour survey data released by Statistics South Africa. The paper then investigates the main causes of youth unemployment, such as skills mismatch, quality of education, lack of experience, expectations of the youths, and the impact of wage rigidities. The paper then discusses how the wage subsidy program works, as well as its potential merits and drawbacks. It is concluded that while a wage subsidy might be effective in facilitating the entry of young workers into the job market, it is not sufficient to increase and maintain youth employment. Various other issues need to be addressed, such as reducing and preventing early drop out from schools; improving the quality of education in former Black schools; more attention to critical subjects like Mathematics and Science to prevent skills mismatch; more emphasis on practical, skills-oriented, vocational training at higher education levels; curtailing restrictive labour legislation that results in wage rigidity, productivity stagnation or decline, and increase in indirect costs, which eventually discourage employers to employ youth workers; and more rapid economic growth that is employment elastic.

Keywords: Youth, employment, unemployment, wage subsidy

JEL Classification: J00, J21