Youth unemployment: Two knock-on effects to expect

As youngsters approach the end of their schooling, they invariably feel their lives are ahead of them as they start making plans for the future. Some will have the opportunity to pursue further education, some may want to get an early start in the job market, some may be taking a break.

The exuberance of youth coaxes us towards our life goals, but there are several realities in the current job market that affect an individual’s ability to attain these goals.

South Africa has historically battled high unemployment rates and unfortunately these rates have deteriorated over the last decade and a bit.

The Stats SA Quarterly Labour Force Survey (QLFS) provides unemployment data going back as far as 2008 and the trajectory of the labour market in South Africa is alarming, as depicted below.

The unemployment rate has declined from 21.5% in Q4 2008 to 34.4% in Q2 2021.

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

The unemployment rate of those under the age of 35 is concerning not only because of its impact on those individuals to earn an income, but also because of its indirect impact on the economy at large.

This article focuses on two specific examples:

1. How does this impact the likelihood that someone will have sufficient income to retire?
2. How does this impact skills development in the economy?

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

Retirment savings deferred

In terms of retirement, this means that the person cannot provide for themselves in the future as they aren’t able to start any form of retirement savings until later in life.

The above unemployment data suggests that only a small proportion of the population under the age of 35 have the ability to begin saving for retirement.

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

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

Ultimately, this means the burden on the state in terms of providing for the elderly will be higher if citizens are not afforded the opportunity to begin saving for their retirement earlier.

Skills development impact

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

This point is something of a self-fulfilling prophecy in that when an economy has a high unemployment rate it means that there are a large number of prospective employees chasing few jobs. This means that employers will often have their choice of high calibre employees (relative to the job requirements), which makes it more difficult for an inexperienced employee to find an entry level job where they can gain experience (and the cycle continues).

This means fewer youths are being presented with opportunities to professionally develop and hence professional development is only taking place at a later point in one’s career than is optimal.

This has a knock-on effect in the organisation 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 organisation to appoint an entry level worker when more developed employees are available and willing to work for the same salary.

An issue desperately in need of a solution

The picture painted in this article is one of an economy that desperately needs to address broader unemployment issues but more specifically, youth unemployment.

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

The exact intervention to be used to rectify this youth unemployment crisis is beyond the scope of this article, however, what is certain is that the status quo is unsustainable.

Bryden Morton is executive director and Chris Blair CEO at 21st Century.