Graduate Unemployment: Solving the Labour Market Paradox.

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South African employers need individuals with skills however as of the first quarter of 2021, 151 200 individuals who hold at the very least a degree cannot find work (StatSA, 2021). This Pauw et al (2006) coins as the labour market paradox. In the South African democratic era, there has been an uphill battle to combat poverty and inequality and the weapon of choice in the government’s arsenal has been the provision of education at every level. Graduate unemployment is fundamentally a two-fold problem. Firstly, it wastes human resources and taxpayer’s money; secondly it chips away at the effort to lift the masses of the people out of poverty. The South African labour market is a fundamental institution for social welfare measures, such that researchers have found that formal sector employment is greatly correlated with exiting out of poverty and losing formal sector employment is greatly correlated with entering the pits of poverty, (Daniels and Ranchhod, 2020).

Point of departure, what or who is a graduate? Unfortunately, in this regard the literature is contradictory as there is no consistent definition of what a graduate is. A plethora of researchers, using a broad definition, define an individual with a post matric qualification as a graduate, (Bhorat, 2004; Kraak, 2010; Baldry, 2016). Whilst a few researchers specifically define an individual that holds at the very least a degree as a graduate, (Van Der Berg & Van Broekhuizen, 2012; Van Broekhuizen, 2016). In this article I take the position of the latter for two reasons. Firstly, results are skewed when degree holders are lumped in together with certificate holders and diplomates. Secondly, nuance is important because the characteristics and trends in the labour market between degree holders, diplomates and those that hold a post matric certificate are not homogenous. Thus, policy intervention cannot paint with the same brush when it is time to canvas these issues. So, as the importance and foundation for graduate unemployment has been laid, I now turn to the causes and thus what can be done about this paradox.

Graduate unemployment is a result of one of three things: frictional, or structural unemployment, or a combination of the two. Graduate unemployment is structural in the sense that there is a skills mismatch in the labour market. From the demand side firms have a dearth of a specific set of skills whereas on the supply side there is a surfeit of graduates that do not have the set of skills the market is looking for. Graduate unemployment is frictional in the sense that independent of the skills a graduate has, they are not being absorbed in the labour market. This can be a result of a contraction in aggregate demand in the economy from supply shocks such as the Covid-19 pandemic or this can be from mobility factors in the labour market, i.e a graduate that is in transition from being a student to being an employee. The argument that underpins this article is that the graduate unemployment is fundamentally structural.

Fundamentally, structural graduate unemployment can be broken down into three main components. First is the skills mismatch in the labour market. Bhorat (2004) identified the incipient graduate unemployment problem from the standpoint of field of study. Put differently, in the labour market not all degrees are the same such that the employment prospects for graduates differs in accordance with the field of study one comes from. Moleke (2005) differentiates between fields of study that have a professional objective (Engineering, Healthcare, Education and Law) and those that are general fields of study (Commerce, Humanities, Natural Science and Agriculture). Graduates from the fields of study with a professional objective find employment on average more immediately; they also find employment that is more permanent as well as more suited to the qualification they obtained more so than those from the general fields of study. The former thus prepares graduates more adequately for the labour market than the latter.

The evolution of growth strategies in the South African context has led to the collapse of the structured pathways to employment for (semi-) skilled individuals in the labour market, (Malikane et al, 2010; Kraak, 2010). This is the second component of structural graduate unemployment, and it demolished the structure mainly in two ways. First are the austerity measures that have limited the role of the state in skills development, for instance, from the mid-1990s to the early 2000s the state cut back on the roll out of bursaries, work placement opportunities and sponsorship for professional and para-professional training, (Kraak, 2010:97). Second is the labour market deregulation that introduced a laissez faire approach to procuring employment for individuals, thus the institutional support structure for labourers to find employment was removed.

Historical factors have led to heterogeneity in the quality of higher education in South Africa (Letseka et al, 2010). Thus, employer confidence in the productive signalling of education has been adversely affected, leading to a shift in employer preferences for an experienced worker as opposed to an educated one, (DPRU, 2006). This is the third component of the structural nature of graduate unemployment. For the sake of brevity, I will only allude to frictional graduate unemployment in the sense that it is only relevant in economic downturns, however its impact is small for graduates as opposed to individuals in other education cohorts.

Finally, it begs the question: what is the relevance of this information? To that I say the following, households that devote a significant resources to acquiring a tertiary education in the hopes of defeating the generational curse of poverty should consider the relevance of the field of study they pursue. This is so that they can maximise the probability of success in the labour market such that they can strategically exit the trenches of poverty. Also, the lack of policy coordination exacerbates existing socio-economic issues and stifles growth. South Africa needs skills to grow, and it needs growth so that overall growth can “trickle down” to employment growth. Equity must be balanced with efficiency such that the critical skills the economy lacks are prioritised in the roll out of funds to students and not just the socio-demographic factors as we have currently in the NSFAS scheme. Lastly, as the old broken record goes the quality of education must be improved and not just the throughput rates.


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