Structural Unemployment in South Africa

[alex_tabarrok]

Originally posted September 29, 2010.

Unemployment in South Africa is now running at 24% overall with significantly higher rates for blacks. A shift away from low-skill labor combined with minimum wages and strong trade unions, however, has meant that it is very difficult to lower wages and reduce unemployment. From a very good piece in the NYTimes:

The sheriff arrived at the factory here to shut it down, part of a national enforcement drive against clothing manufacturers who violate the minimum wage. But women working on the factory floor — the supposed beneficiaries of the crackdown — clambered atop cutting tables and ironing boards to raise anguished cries against it…

Further complicating matters, just as poorly educated blacks surged into the labor force, the economy was shifting to more skills-intensive sectors like retail and financial services, while agriculture and mining, which had historically offered opportunities for common laborers, were in decline.

The country’s leaders invested heavily in schools, hoping the next generation would overcome the country’s racist legacy, but the failures of the post-apartheid education system have left many poor blacks unable to compete in an economy where accountants, engineers and managers are in high demand….

Last year, as South Africa’s economy contracted amid the global financial crisis, unions negotiated wage increases that averaged 9.3 percent [inflation is 5.1%, AT]….

Eight months ago, Mr. Zuma proposed a wage subsidy to encourage the hiring of young, inexperienced workers. But it ran into vociferous opposition from Cosatu, the two-million-member trade union federation that is part of the governing alliance [insiders v. outsiders, AT], which contended that it would displace established workers.

Hat tip: Brandon Fuller.