Unemployment

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The socio-economic costs of this unemployment are at least three-fold. First, unemployed South Africans represent lost economic output today. A back-of-the-envelope calculation illustrates the magnitude of this cost. If employment as a fraction of the total population rose to the level of an average of 6 comparator countries, per capita GDP in South Africa would rise by 48 percent. To put this in perspective, the current South African economic growth plan, ASGI-SA, has set as its goal an increase in per capita GDP of 38 percent by 2014. Hence, if employment as a fraction of the population were to rise to the level of comparator countries, the entire ASGI-SA goal would be more than met.3

A second cost of South Africa’s high unemployment reflects the dynamic aspects of unem- ployment. Workers who are unemployed today are not acquiring the experience and skills that will contribute to their productivity in the future. Hence the static costs of unem- ployment discussed above are amplified over time. An implication of this is that waiting to address unemployment is increasingly costly in terms of foregone future growth. Further- more, the dynamics are such that unemployment is not a self-correcting problem.

The third cost is harder to measure but just as important. Unemployment contributes to the social ills that accompany a loss of hope. These include crime, disengagement with the political process, and a lack of investment in one’s future well-being. Because unemployment is concentrated among adults under the age of 35, their disillusionment with the “new” South Africa carries with it a particular threat to the future of the country.

For all these reasons and more, unemployment is probably the single most pressing chal- lenge facing South Africa today. This paper proposes two specific policy responses to South Africa’s unemployment– responses that are tailored to the idiosyncracies of the South African labor market. The first policy is a targeted wage...
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