Policy Paper 27

South Africa’s stubbornly low labour utilisation rate is an international outlier and a heavy brake on the ambitions for growth and redistribution published in various strategic policy strategies (National Planning Commission 2013). More immediately, low labour utilisation is a major obstacle to the post-COVID-19 employment recovery. The purpose of this paper is to identify the reasons for the low labour utilisation rate in South Africa. We also present potential solutions based on labour market policies of countries that have achieved a significant increase in labour utilisation. We show that increasing labour utilisation requires a shift towards employment-creating policies and fewer limits to competition in product markets and in the labour market. A significant improvement in the focus and effectiveness of labour market institutions is required, alongside supportive microeconomic policies to durably raise employment levels. These microeconomic policies need to lower costs to job creation, address school-to-job transitions, improve the employability of the inactive population and make job search more effective.