26 February 2010 No power over jobs By SIMI SIWISA In his piece "Growth versus inflation" (On My Mind January 8), Monale Ratsoma argues that the Reserve Bank's mandate should be extended to include employment. This, he says, "would mean employment came up in the Bank's performance appraisal".

The idea of an employment targeting policy is neither unexpected nor unwelcome, given SA's unemployment problem. Debates on the mandate of the Bank are increasingly occupying the centre stage. Such debates have ranged widely, from inflation targeting to questions on the appropriateness of our current exchange rate management regime and to whether the Bank's constitutional mandate should be amended. A close assessment of the debates suggests overriding acceptance of the need for a nominal anchor for the Reserve Bank. The question is: which anchor? And what parameters will be applied to that anchor? And can that anchor be adequately influenced through monetary policy? Some possibilities might be poverty levels, employment growth, investment, or real economic growth. A common factor is that these debates occur in the context of seeking to achieve higher economic growth to address the challenges of unemployment and poverty. But it is important to analyse the practical implications of such an arrangement. The obvious problem with targeting employment is that the central bank has no direct control over it or the demand for labour in the country, nor for many of the macro- and microeconomic policies that have an impact on employment levels. And while lower real interest rates stimulate economic activity by driving both consumer and domestic demand, it is difficult to predict their impact on labour and output. Further, in targeting employment it is implied that policy makers would be required to define an "acceptable" unemployment rate and use the appropriate monetary policy instruments to achieve this rate. Unfortunately, such an approach would disregard the structural problems within SA's labour market, especially the glaring mismatch between available skills and required skills in the economy. Suggesting targeted employment also presupposes the ability of the central bank, through its monetary policy, to determine and influence demand for labour and the labour intensity of the SA economy. An employment-targeting monetary policy is unlikely to make a significant dent on unemployment unless it is complemented by appropriate policies which deal with the real problems with our labour market. It would surely be more meaningful to address the unemployment issue by dealing with skills and education in our country. Last year's matric results are a case in point. Almost 40% of our matriculants failed their annual examinations. Even more alarming is the fact that most our young people are ill-equipped for the job market, with current data suggesting youth unemployment is above 60%. Employment targeting by the Bank would do nothing to change that. It is important that interventions are balanced and sustainable. This requires a more comprehensive approach to address the problem of structural unemployment in SA. The debate on the mandate of the Bank must also be studied closely. The calls for managing the exchange rate beyond the current situation of a de facto "managed" float, revisiting the inflation targeting regime, increasing money supply and myriad monetary and fiscal policy debates are interesting. However, we must also be reminded that SA's economy, as a small, open one in a globally integrated economy, might have limited room to manoeuvre. Siwisa is economic policy director at Business Unity SA. She writes in her personal capacity