The South African labour market was likely to remain weak over the medium term owing to slow recovery in the economy and upward pressure on wages, the National Treasury said on Tuesday.

In addition to job losses, the number of people who were no longer actively seeking employment grew by 409 000 between December and June, the Treasury said in the 2009 Medium Term Budget Policy Statement (MTBPS).

Official unemployment remained "reasonably stable" at 23,6%, but the broad measure of unemployment had risen to 29,7% from 26,7% in December.

Job losses were concentrated in wholesale and retail trade, manufacturing, mining, agriculture and transport. Total employment declined by 3,5% between the fourth quarter of 2008 and the second quarter of 2009, compared with annual growth in employment of 2,4% a year between 2002 and 2008.

Creating jobs, particularly among millions of relatively unskilled South Africans, was the country's greatest economic challenge, the Treasury said, noting that low employment was the direct cause of the country's high levels of inequality and marginalisation.

Only around 42% of the population aged between 15 and 64 were in some form of employment. This compared unfavourably with countries such as Brazil and China, where about two-thirds of the adult population worked.

The Treasury said that fewer than 30% of the adult population of the former homelands were working.

The MTBPS quoted the Labour Force Survey, which stated that almost half of young Africans have never worked. "If the country does not find a way to resolve this problem, there will be catastrophic implications for social stability and future growth."

The MTBPS stated that South Africa had the opportunity to use the economic crisis as a catalyst to forge a new growth path that combined faster economic expansion with large-scale job creation to reduce high levels of poverty and inequality, along with an expansion of public services and a strong social safety net.

"Over the medium-term, government intends to play a greater role in drawing more South Africans into work that complements skills development and enhances service delivery."

Through the expanded public works programme (EPWP), government was trying to reduce unemployment and providing incomes to poor communities. In its first phase, which stretched between 2004 and 2009, the programme provided jobs of varying duration, mainly in infrastructure, for 1,6-million people.

Over the next five years, the EPWP aimed to create 4,5-million short-term jobs, the equivalent of two-million full-time low-skilled jobs for unemployed South Africans.

To encourage government departments and municipalities to use funds in their baseline budgets for labour-intensive projects, a wage-based incentive mechanism was being implemented in the infrastructure sector, and for nongovernmental and community organisations providing services on behalf of government.

The incentive was a reimbursement of R50 of the daily wage of each person hired, provided that the job target threshold has been exceeded. This subsidy would be extended to projects in the environment, cultural and social sectors.

The community works programme, which operates largely in rural areas, was being rolled out in the current financial year. It aimed to provide work to a minimum of 1 000 people a week on each site. The programme targeted the creation of 180 000 full-time equivalent jobs by 2014, and has received R114,5-million in the adjustments budget.

In providing incentives to increase intensity in public works programmes, government could also boost job creation by facilitating the transition of workers from older, less-productive industries to new, faster-growing ones, the MTBPS stated.

Income support for affected workers, and education and training programmes, were also more desirable than efforts to save jobs in uncompetitive industries, it added.

Measures to assist young people make the transition from school to work were also necessary.

"A greater role for the State in the economy needs to be complemented by efforts to promote private-sector growth. South Africa's macroeconomic framework needs to promote stronger domestic investment, job creation and export activity," the MTBPS reported.

Current policy options available to government to boost employment also included expanding services that were labour intensive, such as home-based care, refuse removal, building maintenance, grass-cutting, rural road construction, securing government buildings such as schools, and cleaning up environmentally sensitive areas such as rivers, lakes and wetlands.

The MTBPS suggested that government use the tax system to encourage employment.

"Government can consider using the income tax system to provide incentives to employers to hire staff, lowering the cost of employment without affecting wages. Similarly, government can subsidise social security contributions (such as unemployment insurance) for low-income workers."

It could also make greater use of research and development capacity and innovation to support job creation by the private sector. Similarly, responding to the climate-change challenge provides the opportunity to increase investment and employment in so-called green technologies.

Further, it could introduce a targeted voucher to help matriculants enter the workforce. Such a voucher could either be used for further education and training, or be presented to an employer willing to hire the school leaver, helping young workers to gain skills and experience.

In the MTBPS, Treasury also suggested the implementation of a coherent rural development programme, including support for access to agricultural markets, training and assistance to small farmers. Rural infrastructure projects tended to be labour-intensive, with positive effects for community livelihoods.

PRODUCTIVITY

The MTBPS noted that South Africa's productivity, compared with that of our key emerging market peers, had deteriorated, contributing to the country's poor export performance in goods and services, apart from those products, like minerals, which other countries did not have.

"South Africa needs higher levels of productivity and competitiveness for our economy to grow and employ a greater number of workers. Improving the quality of education, increasing the skills base and raising levels of fixed investment will contribute to higher productivity."

Trade policy was another instrument that can be used to bolster competitiveness and to promote exports. On the basis of specific evidence, the Treasury noted that government would take steps aimed at raising employment and lowering the costs of products to boost competitiveness.

"Lowering the cost of hiring young people would improve social inclusion and reduce high rates of youth unemployment. Productivity is central to growth and employment."

The MTBPS noted that although government provided a broad range of incentives, tax breaks and advisory services to help the private sector create jobs, these support measures were not always transparent, and they could be difficult both to access and to monitor.

"Government is considering establishing a fund to support business with the aim of increasing employment. The fund would be made up largely of existing spending programmes and tax breaks, with clear, measurable job-creation targets."

Other government initiatives, such as the new focus on rural development and the expansion of early childhood education opportunities, was also likely contribute to greater employment creation.