Over the past 10 years, South Africa has created an average of only 130,000 new formal work opportunities per year – not enough to absorb the 12 million job seekers currently unemployed. The size of the challenge is so great that even if job growth in the formal sector is three percent per year, it will take 50 years to eliminate unemployment. So, what are our options?
rotate backwards
It is time we faced an honest question: What if the formal economy cannot provide the jobs we need?
I've been working closely with South Africa's administrative tax data over the past five years – it's probably the best way to track progress in the formal sector – and the sobering reality is that we've gone backwards.
It is perhaps no surprise that our last decade of weak economic growth has deepened the jobs crisis.
Looking at the last 10 years of formal sector jobs data (2013/14 to 2023/24 tax year), as reported in the Spatial Tax Panel, South Africa managed to create only 130,000 net new full-time equivalent work opportunities per year. This rate of job creation works out to a growth of just less than 1% per year – not enough to keep pace with our growing population.
Official data from the Quarterly Labor Force Survey (QLFS) confirms this. The number of unemployed job seekers in South Africa is projected to increase from approximately 8 million to more than 12 million between 2014 and 2024.
Formal job numbers don't add up
Perhaps more worryingly, even our best development options are inadequate to reach the next generation of job seekers. Given the size of the challenge the job numbers don't add up.
For example, even if we increase net job creation to 3% per annum – bearing in mind that GDP growth must be higher if it is not 1:1 labor absorption – it will still take more than 50 years for the formal sector to eliminate our unemployment. Increase jobs growth to 5% – which is unrealistic in my opinion – and you're still looking at at least another 20 years.
We basically need to double the size of the formal sector at once to level things out from this point. This is because we have reached a point where the number of unemployed people now exceeds the total number of formal sector jobs.
Yet the problem is not just the pace of job creation – it is also who is being left behind. This is reflected in the fact that the next group of young job seekers is faring worse than before, at least according to the latest tax data.
Figure 1 shows how formal employment has changed across age groups in metropolitan municipalities, benchmarked against a pre-COVID baseline and taken from our recent report on the performance and economic outlook of South African cities.
Figure 1: Percentage change in FTE employees by age group across all metropolitan municipalities
Source: Andrew Nel (2026) Chapter 9 'The impact of COVID-19 on employment in South African cities' by Andrew Nel; City Economic Outlook 2026; Spatial Economic Activity Data South Africa.
The key message is that COVID-19 had a divisive impact on labor market outcomes for young and older workers.
The older group of workers above 35 years of age were surprisingly resilient to the shock of the Covid-19 lockdown and registered only a modest contraction. They soon recovered – and even surpassed their pre-pandemic levels long before lockdown measures were fully lifted.
It was the younger age groups – either 15 – 25 or 25 – 35 years of age – that bore the brunt of the layoffs, with declines of 5% and 15% respectively. What's more, none of the younger age groups showed any significant signs of improvement, with job numbers remaining at a very low balance.
Apparently, employment generation has moved further away from the youth. This trend is not unique to tax data; Several other studies confirm such declines in labor market outcomes among South African youth.
Limitations of Standard Economic Instruments
What do mainstream economic theory and related empirical work say about the resolution of this crisis?
The economist's toolbox is powerful when it comes to marginal adjustments – changes in incentives, prices, and market functioning around the existing equilibrium. Increases in data availability and computational power have also made econometric outputs more accurate and useful.
But South Africa's unemployment crisis is not a marginal problem.
When the required changes are large, the assumptions underpinning these models become less reliable. Attempting to move the dial on unemployment to the required scale leaves us guessing.
A deeper issue is that underlying parameters may need to be changed. It is not just about making markets work more efficiently. We are facing the prospect of multiple generations with very little chance of finding employment. The current balance is dysfunctional – it is not only inefficient, it is exclusionary – which requires more than a change in policy.
The constraints of standard economic logic are illustrated in the debates surrounding the minimum wage and the cost of labor. In its simplest form, economic theory suggests that markets should clear if prices are sufficiently flexible. According to this logic, if wage-setting is completely flexible, unemployment should almost disappear. problem solved.
The problem is that the empirical evidence on demand-side interventions, such as employment tax incentives, is mixed in terms of sustained effects on hiring. Similarly, empirical evidence on the introduction of regional minimum wage laws also showed little impact on employment.
One explanation is that demand for jobs at lower levels may be highly inelastic and therefore relatively unresponsive to wage changes in practice. Of course, this may reflect weaknesses in policy design rather than the underlying labor market.
But this raises a more fundamental possibility: What if our market can't eliminate surplus labor even at half the current wage level?
This is further complicated by spatial constraints. For many poor workers, high transportation costs substantially reduce the returns to low-wage employment, effectively limiting participation even when jobs are available.
Related literature suggests that the South African labor market may not be as rigid as is often assumed. In that case, the problem may go deeper than labor market flexibility alone.
policy options
We have other options also.
Policy attention to the informal economy is increasing. Although I do not want to romanticize the precarity of many micro and small enterprises, there is reason to believe that this sector could generate a lot of employment in the future.
According to the QLFS, the informal economy already employs more workers than formal manufacturing. In fact, the main puzzle is why informality is not so high, given chronic levels of unemployment and potential surplus labour.
Another advantage of expanding informal sector employment is that it is often targeted at marginalized communities and locations, including township economies, women, and black-owned enterprises.
Yet despite this potential, we still have no coherent strategy to support small and informal businesses on a large scale. We also need more research to better understand the constraints that limit the growth of informal sector activity in South Africa.
Another widely discussed option is some form of basic income subsidy.
The appeal of this option is that the public sector already has the administrative capacity to implement income support on a large scale. We have a blueprint for social crisis relief grants. Transfers will likely be modest, reducing the risk of strong labor market shocks.
The main constraints are fiscal costs and risks associated with public finances.
Another set of ideas concerns large-scale infrastructure-led incentives. For example, the recent News24 Jobs Summit believes that increased investment in housing and urban infrastructure could create up to two million potential construction jobs.
This may be complemented by minimum employment guarantees, such as expanded community work or public employment programs.
From ideas to implementation
It is possible that the answer lies in some combination of these approaches.
Yet the fundamental challenge in all of them is the financial cost required to take them to the level where they can make a meaningful difference. Will global financial markets punish South Africa for expanded public spending, or worse, destabilize the broader economy?
I am sympathetic to the difficult balancing act faced by our national treasury.
The alternative is a more fundamental redistribution of existing resources – prioritizing social protection within a public purse of more than R2.4-trillion. For example, there are proposals to eliminate the entire middle tier of district-level government, although there may be better alternatives.
The difficulty is that such spending cuts lead to large and concentrated losses for specific groups, making them politically difficult to implement.
Overall, these options highlight the obstacles to serious policy reform.
some strategic moves are underway
Do we still need the formal sector to create millions of jobs? without a doubt. But the size of formal employment cannot double overnight.
It is difficult to accept a future in which millions of South Africans willing and able to work will remain hungry while we wait for the formal sector to grow.
It is time to make some bold and strategic bets.
Written by Justin Visagie, Econ3x3