As South Africa starts rebuilding after the Covid crisis, we will be reminded that two grave economic realities related to youth unemployment remain. One, our economy cannot absorb anywhere close to the number of citizens looking for work, and two, most of those who are looking for work don’t yet have the capabilities in experience or skill to provide output to their employers that are greater in value than their wages. We are deeply optimistic that these problems can be solved by unlocking the potential and ability of millions of South African youth and giving them the tools to become high performing contributors to our economy.
Unemployment viewed through the lens of buyers and sellers
At its core, the labour market is exactly that, a market. At every level of salary, we sell what we produce to our employer for the cost of our wages and other benefits such as leave and pension fund contributions. Our employer purchases our contribution to their business because they believe that they will be able to sell on that which we produce to their customer for a profit.
Ignoring the particularities of sectoral bargaining for the purposes of simplification, the country’s government, employers (business) and employees (labour) have agreed that the minimum average output (and thus the minimum wage) of a South African worker is R20.76 (or ~1.20 USD) an hour.
Statistics South Africa shows there are around 9 million people that are able to sell their economic contribution at the minimum wage or more. What does that tell us? It means that out of a working-age population of about 38 million people, only about one quarter are able to find a buyer for the goods, services and economic value that they can contribute. One quarter! Of course, there are some people that are not interested in working at the moment because they are at school, studying or looking after family members, or they have just given up looking for work. But they are not sufficient in number to hide the crisis we are facing.
Why are our current approaches failing?
We see three broad arguments that the government and policymakers are using to deal with unemployment, and particularly youth unemployment. In our view, two of them are fatally flawed, and the third is fatally implemented.
The first strategy is one that market fundamentalists argue. They believe that the solution is easy; just drop the minimum price that a buyer of labour has to pay and we will end up with more people employed. “Something is better than nothing”, they say. Proponents of this approach believe that we should drop the price as much as possible, by removing labour protections and dropping minimum wage requirements. That is not our position. Freedom and equality are goals that we all need to be invested in. And that includes economic freedom and economic equality. We can’t leave things as they are.
The second strategy is one frequently followed in Government and the philanthropic sector. To solve this crisis, sellers of output (the unemployed) must be matched with buyers (employers). Rather than seeing the problem as being an issue of the economic output of the youth being too low, their belief is that there are buyers out there readily waiting to purchase the output of the youth unemployed, but they just struggle to find them.
Their solution then is to match the unemployed with employers. This is guided by studies that show that job seekers who experience 12 months of work are less likely to be unemployed in future. Hence, getting people into jobs, any jobs, solves unemployment.
The weakness of this matching strategy is that it doesn’t address the underlying productivity growth of young employees. This process mistakenly focuses on the means (getting someone into a job) rather than the goal (providing citizens with a sustainable livelihood for them and their family). It has two limits: a) there simply aren’t enough $1.20/hour jobs in this economy to absorb millions of unemployed people and b) even if there were these jobs available, job matching doesn’t in itself (despite the resources and goodwill spent) provide an outlet for employees to grow their economic contribution and earn higher wages over time.
The return on investment in skills development is increased employee income, which we are not seeing
The third strategy is a direct investment in skills development. It is not as if our society is ignoring the need for skills training and development. Yellowwood and the Brookings Institute estimates that we spend approximately R200b a year in post-secondary school education and training across the public and private sector. Unless we are able to shift the average economic contribution of everyone in our economy upwards, we will remain trapped in a crisis of unemployment, low wages and poverty.
A single learnership can generate anywhere between R40 000 and R120 000 in tax incentives and direct subsidies. Consider that, R120 000 in government money, when a single job at minimum wage pays approximately R45 000 a year. It is distorted policy, gone crazy. What the government is effectively saying is “we know that the average output is lower than R20, let us pay the difference”.
Where does it all go? How, when we are spending almost R20 000 a year on skills development and training per an employed person, is our minimum wage still at R20 an hour? We are investing all this money into building productivity but we aren’t seeing it translated in higher outputs and higher wages. We similarly aren’t seeing it in higher employment figures either.
There is one clear metric that maps the successful return of investment in skills development: increasing wage growth over time. When we hear that funding is being allocated to job creation and skills development, the first question we should be asking is: “How did the beneficiaries income grow over time?” Because we know sure as hell, that R20/ hour wage is not enough to build the society that we aspire to. Despite the incredible amounts of money being allocated to skills development, we are not seeing returns against this measure. We have lost sight of why most people invest in further post-high school study - to build their incomes.
Two reasons for why our skills development strategy fails
Our skills development infrastructure doesn’t have the scale or the underlying pedagogical approach to absorb and upskill tens of millions of adult citizens.
The first constraint is an issue of the number of classrooms and teachers and trainers required to deal with a problem this vast. All of that takes money and systems and skills that our economy doesn’t have enough of.
It is clear that successful higher education institutions cannot absorb the number of applicants that approach them each year. The rationale behind this overflow is reasonable - having a university education, makes a material difference to one’s likelihood of finding a job, keeping a job and building a growing income. As “fees must fall” has revealed so easily, there simply aren’t enough places in environments that build skills that translate into jobs and growing incomes in our existing training ecosystem.
The second constraint is the approach. Our post-secondary school training is built on a foundation of teaching and assessing fixed skill sets. Most of our students are studying theory and curricula that haven’t changed much in the past 10 years, despite accelerating changes across our work environments.
We have qualifications, degrees and diplomas built on a vast hive of accreditations and regulations. These metrics are broken down to the smallest function related to the discipline being studied. It takes years to get a course accredited. And then even more time and money to make sure that the accreditation is maintained. Watched over by a phalanx of testers and reviewers.
Shift our focus towards a development mindset, not a skills mindset
If our goal is income growth, why are we not looking at the skills development pathways of those that are structurally expected to experience wage growth over the course of their careers: professional services. Drawing on the five principles of talent development from these organisations may inform how we build the average productivity of our workforce, and drive some of our skills funding to a different and more effective model. These can be applied in any environment, not just those with people who have gone to university.
The first principle is that career paths in these environments are clearly structured. One is not expected to know everything on day one but is expected to grow into roles of higher responsibility and accountability over time.
The second is that professional services skills are built largely on sets of adaptive skills involving problem-solving, planning, leadership and communication. Because the clients they serve are always adapting to a changing world, theoretical learning has limited value.
The third element is that one’s performance is assessed on actual performance, not through the proxy of tests. Higher performance is rewarded with higher pay. The fourth is that skills transfer happens from people in the business including both managers and peers. Their promotion is often dependent on how successfully they mentor and develop others.
The fifth and most important factor is that this education process is free for the learner. They learn on the job and use their labour to pay for their education.
What happens if we take these principles used in professional services and apply them across other segments of the economy. Why don’t we make businesses responsible for developing and upskilling staff? Rather than tasking a relative handful of tertiary learning institutions trying to address an almost insurmountable problem, why don’t we push the challenge onto those at the front line, the employers that are buying economic productivity in the first place?
Making the business the classroom.
Our belief is that there is enough talent in our youth and enough money in our economy to solve this problem. What is needed are the tools that the supervisor, the colleague and the co-worker can use to assist each other in getting better at whatever it is they do. What is needed is a structure for learning about learning, not a curriculum of fixed skills.
Adults learn better by doing than by learning theory. They learn even more when they have to coach and train others. If we can use the business as a classroom we can build up the skill sets required for young people to run their own businesses successfully and train and develop more people. Rather than having 50 -100 learning institutions, we can have thousands if not tens of thousands.
Real business environments offer two crucial advantages 1) they have easy to understand success and failure filters: did the job get done and did it make money 2) Learners can pay for their education through their own contribution to the business.
Rather than focusing on skills, we can use businesses to develop the behaviours and habits that allow learners to continue to build their own skillset over the course of their career. You can’t teach curiosity, communication and problem solving easily in a lesson. But you can use a work environment to develop those skills over time. Particularly with regular feedback from peers and mentors.
Inclusive skills development for the benefit of all
With the right mix of incentives and technology, we can achieve this. We can shift learning about work into actual businesses, be they restaurants, factories, petrol station forecourts, or packhouses. Rather than learning about budgets and income statements in a classroom or online, use the review of a business’s monthly financial statements to achieve the same end. Rather than learning about performance management and employment law, allow peers to provide each other with regular structured feedback.
Creating real learning environments that offer real tangible wage growth also directly benefits the underlying business. Employees become more engaged in what they do because they can link that to a better immediate and long term future.
More engagement leads to better customer satisfaction and better customer retention. Customer retention makes business more competitive, and those that struggle to compete will be forced to develop ways to make their employees more engaged. More skills and understanding leads to lower management overheads and better business performance in terms of higher transparency, lower wastage, and preemptive problem-solving.
There is a pathway available to our economy to restructure how we think about employment, productivity and wage growth. Shifting learning into the workplace can reset our economic trajectory, save money and create better livelihoods.
Solving youth unemployment requires a change in the mindset of our policy-makers. Rather than focusing on skills that may or not be required in an ever-changing world and economy, we should be building the behaviours and habits that allow high potential young people a pathway to learn whatever it takes to lead the economy, on the job.
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