Labor Market Reform Options to Boost Employment in South Africa

IMF Working Papers, June 11, 2021

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Raising South Africa’s low employment rate to levels seen in emerging market or advanced economy peers could raise GDP per capita by 50 to 60 percent and reduce income inequality dramatically in the long term.
Covid-19 has put further strain on an already fragile labor market and raised the urgency of action.
The paper reviews labor market policy and other reform options to enhance South Africa’s job market performance, drawing from international evidence and new analysis.

Potential macroeconomic gain:
- Raising employment to peer levels could raise GDP per capita by 50 to 60 percent.
Distributional impact:
- Such a rise in employment would reduce income inequality dramatically in the long term.
Impact of Covid-19:
- Covid-19 has increased urgency by putting further strain on the labor market.

Labor market institutions:
- There is much scope for improving the design of key labor market institutions—including collective bargaining and employment protection legislation.
Active labor market policies:
- Enhancing active labor market policies to improve job seekers’ prospects is recommended.
Complementary reforms:
- Labor market reforms should come hand-in-hand with reforms in education and product market regulation that may work pay.

Primary beneficiaries:
- Labor market and other reforms would primarily benefit disadvantaged groups such as youth.