Wednesday, January 26

Youth unemployment: two side effects to expect

As young people near the end of their education, they invariably feel that their lives are ahead of them when they begin to make plans for the future. Some will have the opportunity to continue their education, some may want to start the job market early, some may be taking a break.

The exuberance of youth propels us toward our life goals, but there are several realities in today’s job market that affect a person’s ability to achieve these goals.

South Africa has historically struggled with high unemployment rates, and sadly these rates have deteriorated somewhat over the past decade.

Stats SA’s Quarterly Labor Force Survey (QLFS) provides data on unemployment dating back to 2008 and the trajectory of the labor market in South Africa is alarming, as shown below.

Source: Stats SA QLFS Q2 2021 trend data

The unemployment rate has decreased from 21.5% in the fourth quarter of 2008 to 34.4% in the second quarter of 2021.

Focusing on the two youngest age categories (15-24 and 25-34), we have seen that the unemployment rate (during the same period) increased from 44.9% to 64.4% and from 24.9% to 42.9%, respectively, as illustrated below.

Source: Stats SA QLFS Q2 2021 trend data

The unemployment rate for those under 35 is worrisome not only because of its impact on those people to earn income, but also because of its indirect impact on the economy in general.

This article focuses on two specific examples:

  1. How does this affect the likelihood that someone will have sufficient income to retire?
  2. How does this affect skill development in economics?

The first impact of unemployment is that a person cannot earn an income to support himself and his dependents.

Deferred retirement savings

In terms of retirement, this means that the person cannot support themselves in the future, as they cannot start any form of saving for retirement until later in life.

Previous unemployment data suggests that only a small proportion of the population under 35 has the ability to start saving for retirement.

The nature of retirement savings vehicles is that they require long periods of time to allow the effects of compounding growth to add much more significantly in the last five years to the investment vehicle compared to the first five years.

Starting later in life reduces the potential size of this fund and therefore the impact of compound growth over time.

Ultimately, this means that the burden on the state in terms of providing for the elderly will be greater if citizens do not have the opportunity to start saving for retirement earlier.

Impact on skill development

The second impact to consider is how the high rate of youth unemployment affects skills development in the economy.

This point is something of a self-fulfilling prophecy in the sense that when an economy has a high unemployment rate, it means that there are a large number of potential employees who are pursuing few jobs. This means that employers will often be able to choose between high-caliber employees (relative to job requirements), making it more difficult for an inexperienced employee to find an entry-level job where they can gain experience (and the cycle continues).

This means that fewer young people are presented with opportunities to develop professionally and therefore professional development only takes place at a later point in one’s career that is optimal.

This has a ripple effect on the organization and creates pressure on those who have received early career development opportunities, while those new to the workplace catch up on the development they have missed. This makes it more difficult for an organization to appoint an entry-level worker when more developed employees are available and willing to work for the same salary.

A problem that desperately needs a solution

The landscape presented in this article is one of an economy that desperately needs to address broader unemployment problems, but more specifically, youth unemployment.

The problems associated with youth unemployment affect not only the burden of social spending on the state (in the form of retirement benefits) but also the country’s productivity (as employees are developing later in life due to lack of entry-level job opportunities).

The exact intervention that will be used to rectify this youth unemployment crisis is beyond the scope of this article, yet the truth is that the status quo is unsustainable.

Bryden Morton is the CEO and CEO of Chris Blair at 21st Century.

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