South Africa is failing its young people by not creating jobs for them. Photo by Manash Jyoti Das/Gallo Images via Getty Images It’s time South Africa faced up to an honest question: what if the formal economy can’t deliver the jobs that are needed?
I am an economist who has been working closely with South Africa’s administrative tax data over the past five years – arguably the best way to track progress in the formal sector.
The sobering reality is that the country has gone backwards. And young people are bearing the brunt of the deterioration. The scale of the jobs crisis is now so large that even decades of strong economic growth won’t be enough to eliminate it.
Looking at the last 10 years (2013/14 to 2023/24 tax years) of formal sector jobs data, as reported in the Spatial Tax Panel – a database constructed from employer-employee tax returns – South Africa managed to create only about 130,000 net new full-time equivalent work opportunities per year. This rate of job creation works out at just under 1% growth per annum – which isn’t enough to keep pace with the country’s growing population.
The official statistics from the Quarterly Labour Force Survey confirm this. The number of unemployed job seekers in South Africa has risen from about 8 million to almost 12 million between 2014 and 2024. The reported number of formal sector jobs is also around 12 million.
What is perhaps more alarming is that even if formal sector employment were to grow at 3% per annum, it would still take more than 50 years to substantially reduce unemployment.
The problem is not only the pace of job creation, it is also who is being left behind. The next cohort of young job seekers is faring worse than ever, according to the latest tax data.
Figure 1 shows how formal employment has shifted across age cohorts in cities, compared with the pre-COVID baseline. It’s drawn from our recent report on the performance and economic outlook for South African cities.
Figure 1: Percentage change in employment by age group across all metropolitan municipalities
The main message is that the pandemic had a dividing effect on labour market outcomes across younger and older workers.
Workers aged above 35 years were surprisingly resilient to the shock. Numbers fell only slightly. They soon reached – and even surpassed – their pre-pandemic levels.
It was younger age groups – either aged 15-25 or 25-35 years – that faced the worst of the layoffs. The 15-25 cohort contracted by 5% and the 25-35 cohort by 15%.
Neither of the younger age cohorts showed much sign of recovery. Job numbers levelled off much lower.
Job creation has apparently shifted even further away from young people. This trend isn’t unique to the tax data; a number of other studies confirm it.
What do mainstream economic theory and related empirical work have to say about addressing this crisis?
The economist’s toolbox is powerful when it comes to tweaking incentives, prices and market functioning around an existing equilibrium. The rise in data availability and computational power has also made analysis more precise and useful.
But South Africa’s unemployment crisis is not that kind of problem. It doesn’t need just a small adjustment.
When the required changes are large, the assumptions underpinning the models become less reliable. Attempting to move the dial on unemployment at the scale South Africa requires pushes us into guesswork.
South Africa is facing the prospect of multiple generations with little chance of finding employment. This calls for more than just policy tinkering.
The constraints of standard economic reasoning are illustrated in the debate around minimum wages and the costs of labour. In its simplest form, economic theory suggests that unemployment should all but disappear if you could be flexible about setting wages. Problem solved.
