Introduction section one 6

SECTION ONE

Section One of this paper considers the underlying determinants of youth unemployment, the bottlenecks impeding youth unemployment. It then considers the extent to which the legislative and policy environment that is place addresses these challenges and creates a framework for creating opportunities to address unemployment.

The importance of addressing this imperative cannot be overstated and is illustrated by the following graphic developed by the Department of Performance Monitoring and Evaluation¹.

2. Underlying determinants of youth unemployment in the country

This section looks at the underlying determinants of youth unemployment, which are defined as the macro factors that are outside of our control and will not be able to be addressed by within the scope of interventions proposed within this paper.

The first and most important explanation for high levels of youth unemployment is slow economic growth in a context of high structural unemployment. Literature that attempts to explain the high overall rate of youth unemployment generally describe the main determinants of youth unemployment as being a lack of demand from the economy – that the level and growth of economic activity has been unable to cope with the supply of new entrants to the labour market (Budlender² citing Mlatsheni and Rospabé, Altman and Marock (2008); a study completed by the World Bank.³ suggests that the lack of labour demand in markets where economic activity is too slow for job growth or where there is a demand for labour but employers choose not to hire the available labour pool is a key constraint to youth employment).
The extent that this poses a challenge for interventions addressing youth unemployment is therefore seen when reviewing the nature of the economy in South Africa, which is, at present, characterised by low growth and high levels of job loss. The unemployment Rate in South Africa averaged 25.27 percent from 2000 until 2015, reaching an all time high of 31.20 percent in the first quarter of 2003 and a record low of 21.50 percent in the fourth quarter of 2008. More recently, the overall jobless rate in South Africa increased to 25.5 percent in the third quarter of 2015 from 25 percent in the previous period and the number of unemployed rose 3.6 percent.
The disproportionate numbers of youth unemployed relative to overall population is consistent with international patterns where it is also found that “unemployment among young people tends to be more sensitive at the economic cycles than the unemployment among adults, the number of unemployed youngmen (sic) tends to increase faster during the recession periods and to decrease, in the same way, during the periods of economic increase, than the number of unemployed adults. The most studies conclude the fact that the aggregated economic performance represents a decisive factor of the unemployment rate among youngmen. (Blanchflower și Freeman, 2000)⁴”.
The above-mentioned article suggests that, “the transition from school to the integration of young generation in the work force market represents one of the most critical and pressing problems of work force market functionality, with a significant economic and social impact”⁵. The import of the education system in determining access to the economy has also been highlighted by numerous research studies in South Africa as outlined below.
Bhorat⁶ offers a graphical representation of the nature of these youth transitions across the schooling-labour market continuum in South Africa (Figure 1). Figure 1 illustrates that there are a certain number of youth within the education pipeline, and as they progress through this pipeline there are a series of different thresholds (represented by nodal points in Figure 1) where they either exit education and enter the labour market, or continue with their education. The chosen exit point from the education pipeline will ultimately strongly influence labour market outcomes. However, there are a range of factors that influence both the exit point and the labour market outcome.
The first transition point, represented by node 1 in Figure 1 represents the decision, while in secondary school, to either continue and complete high school or to drop-out from secondary school and enter the labour market. The article uses National Income Dynamics Study (NIDS) panel data, and estimates that between 2008 and 2012, 50.71% of the youth moving through this pipeline dropped out of secondary education⁷. A further 3.79% of the youth moving through the education pipeline, exit before completing their high school education but then re-enter the education pipeline (represented by node 2 in Figure 1. They enrol in either a National Technical Certificate (NTC) course or some other form of tertiary education that does not require a complete high school education.

The third transition point, represented by node 3 in Figure 1, refers to youth who once completing high school, either continue with higher education or enter the labour market. According to the NIDS data, between 2008 and 2012, approximately one in every four youth who were in the education pipeline in 2008, complete their high school education and then enter the labour market.The fourth transition point, represented by node 4 in Figure 1 represents those youth who continued into higher education after completing their high school education. According to the NIDS data, between 2008 and 2012, 19.27 percent of the youth who were in the education pipeline in 2008, entered into higher education. With regard to tertiary education, a distinction is made between youth who dropped out of secondary school before completion and entered into tertiary education that does not require a complete high school education (e.g. NTC), and youth who completed high school and entered tertiary education (e.g. university degree). We identify these separately, as the labour market outcomes differ across these two groups.

Figure 1: Education Pipeline - School to Labour Market

At each of the transitions points, youth move from the education pipeline to the labour market. The labour market outcome can be one of the following: wage employment, self-employment, unemployment and discouraged work-seeker. Ultimately one could then also consider the post-work transitions of the youth who obtain employment after their education. These transitions refer to whether young people can retain their jobs, and if they do, for how long, and whether this leads to occupational mobility and increased earnings (this is depicted in the block to the right of Figure 1)

Utilising this framework, the article suggests the e following summarised overview of youth transitions through the schooling system: Of the 100 young people who enter the secondary schooling system, 51 will drop out. In turn, 26 continue onto completing their matric and then enter the labour market. Finally, of the 100 secondary school starters 4 will enrol into the TVET system (without completing high school), whilst 20 of these starters will complete high school and move onto a tertiary institution.

It is expected that the labour market outcome is strongly determined by the level of education of the youth entering the labour market, and hence the point of exit from the education pipeline. This is illustrated in Figure 2, which shows lower unemployment rates for youth who exit the education pipeline at higher levels of education.

Figure 2: Unemployment Rates By Youth Cohorts

Source: NIDS Wave 1 and Wave 3. Own calculations

These finding are reinforced by numerous research papers, which highlight the relationship between education, skills and access to the economy. Rankin et al in their paper ‘Young People and Jobs during the Financial Crisis’ (Unpublished) show that the challenge faced by young people during the financial crisis is the growing skills bias (with Grade 12 increasingly utilised as a proxy for skills) in the South African labour market. Industries that have traditionally absorbed most unskilled entrants to the labour market now have a lower ratio of semi- and low-skilled jobs. The impact of the growing prioritisation of skills affects young people most adversely, because semi- and low-skilled jobs are natural entry points into work. They indicate that an analysis of Labour Force Survey data reveals that the industries that have traditionally absorbed high numbers of unskilled entrants to the labour market are increasingly shifting to hiring more skilled labour: this is illustrated by the calculations that Rankin et al (2012) make, which show that between 2000 and 2010, the ratio of semi- and low-skilled jobs to skilled jobs fell from 9.6 to 7.1 in mining and quarrying, 5.2 to 2.0 in manufacturing, 17.4 to 4.7 in construction and 7.3 to 3.7 in the wholesale and retail sector. It is indicated that the impact of the growing prioritisation of skills affects young people most adversely, because semi- and low-skilled jobs are natural entry points into work (Rankin et. al., 2012).

This section has highlighted that general unemployment can be determinant of levels of youth employment and that education is a key determinant of youth unemployment. This context needs to be borne in mind and it is recognized that if not addressed will continue to result in large numbers of youth being unemployed: however it is suggested in this paper that there are bottlenecks that can be addressed by interventions which would allow a greater number of young people to navigate the labour market. These are addressed in the following section.

2.