How To End Unemployment

South Africa is cursed with a host of regulations and laws that stifle business freedom and discourages companies from employing workers unless they really must...

Unemployment is the fundamental problem with South Africa. We have many systemic and endemic issues, but most of our woes would be solved if more people had jobs.

The fiscal crisis would be solved with more taxpayers. Petty crime would drop if people could earn an honest living. Extra tax revenue could equip law enforcement to prosecute the violent criminals. Wealth would grow, equipping South Africans to feed their children, solve nutritional deficiencies, and send their kids to better schools.

According to StatsSA, 31.4% is the official unemployment rate. If you include those jobseekers who have given up and other potential members of the labour force, that number jumps to 42.1%. That means that for every ten South Africans of working age, between 3 – 4 of them don’t earn a living. They don’t pay tax. Often, they are dependent on grants paid for by tax money – or puts financial strain on a family member.

When you look closer at these stats, the cause of unemployment becomes starker. 57% of people aged 15 – 24 are unemployed. 39.2% of 25 – 34-year-olds are unemployed. That number drops as people get older, with only 20.4% of people aged 45 – 54 being unemployed.

Unemployment disproportionately affects young, entry-level workers. Older people with experience and skills are less likely to face unemployment.

Some would think that having younger, more energetic workers would be a boon for a company. Especially, if we’re being pessimistic, considering that younger workers can be paid less than their older counterparts. Yet South African companies are hesitant to employ entry-level workers.

South Africa is cursed with a host of regulations and laws that stifle business freedom and discourages companies from employing workers unless they really must, and unless they really trust the person being hired.

The Labour Relations Act (LRA) grants far too much power to trade unions, allowing these unions to shutdown entire industries and to standardise unworkable and unprofitable wages. Companies fear firing their workers because they may be required to pay hefty compensation (up to 12 – 24 months’ salary) and even be ordered to rehire the fired worker.

The Commission for Conciliation, Mediation and Arbitration (CCMA) pushes huge requirements on the employer to justify dismissal. This discourages employers from hiring workers at a whim or taking a risk. They need to be very sure when they hire someone, or they risk never being able to fire them.

The Basic Conditions of Employment Act (BCEA) raises hiring costs through mandatory benefits, pricing low-skilled workers out of employment. These rules also stop companies from flexible planning and operations. This pushes employers towards automation and contract workers.

The Employment Equity Act (EEA) actively discourages companies from wanting to grow their business or employ anyone, as they will be required to employ people based on race, and have the demographics of their company reflect the racial ideology of the government. Non-compliance can lead to fines in the millions. While employers can try to justify straying from the EEA, the risk is still present.

The National Minimum Wage Act inflates labour costs, pricing out entry-level positions and making it uneconomical to hire people for certain jobs. Bargaining councils also inflate the minimum wage to even higher than the national mandate, further discouraging employers from hiring.

The Unemployment Insurance Act (UIA) and other related funds require employers to bankroll part of the financial safety nets of their employees, while also becoming wrapped up in paperwork and red tape. This discourages the hiring of even temporary staff, lest the company take on ongoing liabilities.

The law is not on the side of employers, and they know this, and so, they don’t risk hiring new workers. Trade unions threaten to shutdown entire industries while demanding exorbitant pay rises – often using violence to achieve their ends. Of course, we don’t have a lot of jobs! The government doesn’t make it easy to want to provide jobs.

So, what’s the solution?

First, we need to liberalise the labour market. We need to make it as easy to hire and fire people as possible. If someone visits an office and asks for a job, that company should be fully incentivised to say: “Hey, if it doesn’t work out, we can just dismiss you.”

Allow companies to take risks on their own terms, and don’t protect workers from economic realities or accountability.

We must also reduce red tape across the board. Business licensing and registration must be abolished or streamlined. Regulatory and paperwork burden must be reduced as much as possible. What should matter is that a company is hiring someone and is paying them. Unless that company is genuinely harming that employee, it is no business of the state.

We must also abolish Black Economic Empowerment (BEE) and the EEA. Racialised legislation disincentives companies from growing their businesses, lest they must give a portion of their company away to a politically appointed “partner”.

The government must also make South Africa friendly to foreign investors and companies. US firms already employ over 250,000 South Africans. Imagine if South Africa guaranteed property rights and provided policy certainty to foreign investors. Even more companies would flood into the country, bringing jobs and capital.

To accomplish this, the government needs to adopt a truly non-aligned approach to foreign policy, and stop antagonising the US and other Western countries, as well as getting rid of policies that may threaten property rights – like the Expropriation Act.

The government must also cut the red tape on the creation of private colleges and schools. Public schools have proven to not provide satisfactory education. And there are far too many young South Africans who need tertiary education to develop skills. The solution isn’t to encourage them all to study unmarketable subjects at universities – but to expand the range of technical, vocational and private colleges to raise the supply of study positions. Allowing the creation of private medical colleges would simultaneously raise our supply of doctors, lowering medical costs.

Finally, the Reserve Bank needs to relax its controls over South Africans receiving income from abroad. Many enterprising South Africans have turned to working digitally overseas to bring in an income. Yet the government makes it incredibly hard and onerous to receive this money. It is perfectly easy to spend money on foreign products, but very difficult to get paid.

South Africans earning a living and bringing money into the country should be encourages and the process to receive remittances eased.

I am not alone in thinking all this; 86% of South Africans support liberalising the labour market to make it easier to get a job.

South Africa does not need more slogans, plans, or excuses. It needs jobs. And jobs will only come when government stops treating employers as suspects, workers as permanent liabilities, and growth as something to be managed rather than unleashed. Liberalise the labour market, slash red tape, restore policy certainty, and let South Africans work. Only then can we begin to end unemployment.

Nicholas Woode-Smith is the Managing Editor of the Rational Standard and a senior associate of the Free Market Foundation. He writes in his personal capacity. You can follow him on X: @NWoodeSmith.