Labour Market Reform is Needed for Inclusive Growth

South Africa’s unemployment problem is largely structural, in the sense that it is being driven by the decline of historically important employment sectors such as agriculture and mining. It is, however, being exacerbated by the country’s labour and industrial policies. These are biased against labour-intensive industries and make labour-intensive growth impossible to achieve, while making the economy increasingly skill- and capital-intensive. This has led to higher labour productivity (along with higher average wages), but at the cost of a much weaker relationship between the growth of the economy and the creation of jobs. Job creation projects can help ameliorate this, but if we are to generate large numbers of new jobs, we have to confront the growth path itself. South Africa’s extremely high unemployment rate means that inclusive development is impossible without more labour-intensive growth. When nearly two adults in five is unemployed the expansion of jobs, even at relatively low wages, reduces poverty and inequality.