Youth unemployment is one of South Africa’s biggest problems and concerns as it affects the

youth economically, socially, psychologically, as well as their relationships with their families
and communities (Patel, Khan & Englert, 2018:2). To counter this, On 1st January 2019 South
Africa implemented a minimum wage, i.e. the lowest legal wage that can be paid, of R3500
per month or R20 per hour. The main aim of the minimum wage is to provide all individuals
with an income that can afford them a sustainable standard of living and to improve equality
in the country (Patel, Khan & Englert, 2018:1). This essay will argue the theory of the effect
of the minimum wage and how in reality it has no effect on youth unemployment and will
start with defining and discussing youth unemployment by specifically looking at the effects
and causes of youth unemployment as well as statistics of unemployment organized by race
and gender.

Youth unemployment is separated into two definitions, namely: Strict and Expanded. Youth
unemployment is Strictly defined as individuals (aged 15–34 years in South Africa and 15 -24 in
the rest of the world) who were not employed in the survey week; were actively looking for work
at least four weeks before the survey; were available to work and had not actively been looking
for work in the past four weeks (Statistics South Africa, 2019:17). Youth unemployment is
Expansively defined as individuals (aged 15–34 years in South Africa and 15 -24 in the rest of
the world) who are Strictly unemployed and are available to work but are discouraged from
seeking work or have other reasons for not seeking work (Statistics South Africa, 2019:17).

The main reasons for youth unemployment include skills mismatch and poverty. Skills
mismatch between the courses offered by tertiary institutions and the requirements demanded
by the jobs offered could increase youth unemployment (Naureen & Lodhi, 2010: 132). Each
individual offers a different set of skills from different knowledge and education and are
therefore classified as “heterogenous workers“ (Thisse & Zenou, 2000:415). Each firm has
different requirements for a particular worker that they are willing to hire, as each firm wants to
do their best to outcompete their competitors, and therefore are classified as “heterogenous
firms” (Thisse & Zenou, 2000:415). Therefore, a particular firm will most likely only hire
workers with skills that benefit the firm as it decreases the costs and time spent on training as
those individuals can start working immediately (Thisse & Zenou, 2000:416).

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Poverty involves households and individuals not having enough income for their basic needs and
education as well as the lack of proper economic systems due to the large inequalities between
the rich and poor (Cloete, 2015: 516). Poverty causes youth unemployment as individuals cannot
afford money for education and therefore cannot acquire the necessary skills needed to work and
also affects them psychologically as being unemployed can discourage the youth from
completing some sort of education and can lead to anxiety, depression, alcoholism, drugs, crime
and joining gangs (Cloete, 2015:518-519).

The effects of youth unemployment cause psychological, financial and social problems (Sinha,
2018:315). Psychologically , unemployment tends to make the youth feel as if they are not
good enough and they tend to compare themselves with others who managed to become more
successful than themselves (Sinha, 2018:318-319). This can lead to stress, depression and
suicidal thoughts and will most likely require help and support (Sinha, 2018:318-316).

Financially, being unemployed means lack of income and therefore requires youth to be
dependent on family members or friends for money (Sinha, 2018:320). Socially, people in
your community will often compare you to others who are employed and will lead to
exclusion (Sinha, 2018:321). Being unemployed can also affect an individual’s social life as
they might struggle to build personal relationships as they might feel lesser than those who
are employed and will not have the same opportunities (Sinha, 2018:321).

Men consists of a higher proportion of the population of the working age in the first quarter of
2019 (65%) compared to women (52.6%); (Statistics South Africa, 2019:19-20). Specifically,
Whites (67.1%) and Coloureds (63.4%) have a higher proportion of the population of the
working age in the first quarter of 2019 compared to Indians/Asians (58.6%) and Blacks
(57.4%); (Statistics South Africa, 2019:21-22).

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More men are employed (48%) compared to women (37.2%) in the first quarter of 2019
(Statistics South Africa, 2019:19-20). This indicates that more than 50% of both men and women
in South Africa are unemployed with women being affected more by unemployment. More than
50% of Whites (62.6%) and Indians/Asians (51.9%) are classified as employed and less than
50% of Blacks (39.6%) and Coloureds (49.3%) are classified as employed in the first quarter of
2019 (Statistics South Africa, 2019:21-22). This indicates that Whites and Indians/Asians are not
affected by unemployment as much as Blacks and Coloureds with Blacks being affected the most
as a possible result of poverty and lack of skills.

Youth (ages 15-34) in the first quarter of 2019 consists of 52% (Statistics South Africa,
2019:78). More female youth are affected by unemployment than the male youth in the first
quarter of 2019 (Statistics South Africa, 2019:78). The number of Black youths are enormously
affected by unemployment compared to Coloured, Indians/Asians and White youth in the first
quarter of 2019 with youth Indians/Asians being the least affected (Statistics South Africa,
2019:78). Therefore, one can assume that a young Black woman would be the most affected by
unemployment while a young Indian/Asian male would be the least affected.

Young Black women were the most affected by unemployment due to the Apartheid System
(Kingdon & Knight, 2007:825). This system denied the rights of Black South Africans through
harsh laws and restrictions (Kingdon & Knight, 2007:825). Therefore, Black South Africans,
under Apartheid, were given inferior education and subsequently were unable to develop their
skills and abilities, thereby affecting their opportunities for employment (Kingdon & Knight,
2007:826).

According to the ILOSTAT SDG indicator 8.6.1 2018 of the International Labour Organization
Statistics, the proportion of youth (internationally classified as aged 15-24 years) not in
education, employment or training in other developing countries such as Brazil is 24.1% and in
Argentina it is 19%. According to table 3 from Stats SA, South Africa’s proportion of youth
(using the international classification of ages 15-24 years) unemployment is 21% which suggests
that South Africa’s youth unemployment is similar to other developing countries.

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In theory, the effect of the minimum wage can result in two different effects on youth
unemployment.

Figure 2: The bargained wage-setting curve and labour market equilibrium when there is a
minimum wage and voice effect

(Adapted from Bowles, Carlin & Stevens, 2017:397)

Before the introduction of the minimum wage, The Human Resources department sets the wage
high enough to maximize profits and a wage sufficient enough to motivate workers to put in a
level of effort that will maximize profits (Bowles, Carlin & Stevens, 2017:394). The government
introduces the minimum wage which is usually higher than wage set by the firm and the effort
levels of employees increase but the minimum wage is still higher than the production levels,
thereby lowering profits (Bowles, Carlin & Stevens, 2017:394). Because of the decrease in
profits, firms are unable to employ more workers as they can only maximize profits with less
employees (Bowles, Carlin & Stevens, 2017:394). This would lead to an increase in youth
unemployment as indicated by the wage setting curve shifting upward.

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However, if employees were to show gratitude of their employers’ recognition of the minimum
wage, putting in more effort of work will no longer be an issue for them and this will result in the
increase of production levels without any additional costs on top of the minimum wage and the
firm’s profits will be higher (Bowles, Carlin & Stevens, 2017:395). As a result of the increase in
profits, the firm can now employ more workers and youth unemployment now decreases (as
indicated by a shift in the wage setting curve from X to Y) ; (Bowles, Carlin & Stevens,
2017:395). Therefore, in theory, one can expect the minimum wage to either cause youth
unemployment to increase or decrease, depending on how the effort levels put in by employees
affects the profit levels of the firms.

A study in South Africa found that the majority of the youth were not impressed by the idea of
an introduction of a minimum wage and did not give them any motivation to study further (Patel,
Khan & Englert, 2018:9). The reasons for this, especially those living in poverty felt that their
education and skills training were still not sufficient for even the minimum wage paying jobs, in
addition the costs of looking for a job are too high (Patel, Khan & Englert, 2018:9). Another
reason is that the majority felt that they would be willing to accept any job that paid less than the
minimum wage, although unfair, out of desperation for work due to their difficult circumstances
(Patel, Khan & Englert, 2018: 11).

A study in Taiwan found that the minimum wage had no effect on the youth unemployment rate
due to a lack of skills demanded by the change of industries to a more capital and technology
driven industries (Chuang, 2006:160).

Statistics show that young Black South Africans are affected by youth unemployment the most
and that more than 50% of both men and women in South Africa are unemployed with women
being affected more by unemployment. The economic theory of the effect of a minimum wage
on youth unemployment does not hold in real life as real-life experiments in both South Africa
and Taiwan show that the minimum wage does not have an effect on youth unemployment as the
main causes of unemployment such as skills mismatch and poverty need to be addressed first,
thereby defeating the objective of the introduction of the minimum wage.

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Reference List

Bowles, S., Carlin W. & Stevens, M. 2017. The Core Team: The Economy: Economics for a
changing world. New York: Oxford University Press.

Chuang, Y. 2006. The effect of minimum wage on youth employment and unemployment in
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Cloete, A. 2015. Youth Unemployment in South Africa: A Theological reflection Through the
Lens of Human Dignity. Southern African Journal of Missiology. 43(3):513-525.

International Labour Organization Statistics. 2019. SDG indicator 8.6.1 – Proportion of youth
(aged 15-24 years) not in education, employment or training (%) – Annual.
https://www.ilo.org/shinyapps/bulkexplorer1/?
lang=en&segment=indicator&id=SDG_0861_SEX_RT_A

Kingdon, G. & Knight, J. 2007. Unemployment in South Africa, 1995-2003: Causes, Problems
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Naureen, S & Lodhi, F. A. 2014. Reasons of Unemployment among the Educated Youth in
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134.

Patel, L., Khan, Z., Englert, T. 2018. How might a national minimum wage affect the
employment of youth in South Africa? Journal of Development Southern Africa.
DOI: 10.1080/0376835X.2018.1552556

Sinha, N. 2018. Understanding the Effects of Unemployment in Indian Graduates:

Psychological, Financial and Social Perspectives. Journal of Physiological Studies. 63(3):315-
324. DOI: https://doi-org.ezproxy.uct.ac.za/10.1007/s12646-018-0447-9

Statistics South Africa. 2019. Quarterly Labour Force Survey: Quarter 1: 2019
http://www.statssa.gov.za/publications/P0211/P02111stQuarter2019.pdf

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Thisse, J-F. & Zenou, Y. 2000. Skill mismatch and unemployment. Journal of Economics
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