In trying to reduce unemployment in South Africa, the pursuit of higher economic growth is the single most agreed-upon policy strategy. The consensus on this ‘obvious solution’ may blind us to the fact that economic growth, though important, may only be half of the solution. Attempts to fine-tune and turbo-boost the formal-economy ‘engine of growth’ to absorb more labour are fundamentally constrained. Economic policy makers must look at other options for generating employment and self-employment for unemployed people.
Firm-level data for the period 2005 to 2011 indicate that job creation and destruction rates in South Africa are only slightly lower than among OECD countries. Around 10% of existing jobs are destroyed each year, while the number of new jobs is around 9.5% of existing employment. Larger firms have higher rates of net job creation than small firms. The relatively high reallocation of employment across firms suggests lower rigidities in the South African labour market than is sometimes believed.
Small and medium-sized firms hold the potential to absorb most of the unemployed in South Africa. In this the NDP may be correct. However, the NDP may not be correct in arguing that exports can be the main catalyst of the growth the country needs to address poverty and employment. Several factors hinder such a strategy. A more domestically-focused policy aimed at production (and services) for local consumption might bear more fruit.