Breaking the Poverty Cycle: Reimagining South Africa’s Youth Employment Through ETI Innovation and Beyond

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Abstract Youth unemployment is a persistent socio-economic problem for developing economies and is often more pronounced for nations struggling to overcome the impacts of historical inequalities and structural economic challenges. This chapter evaluates the efficacy of the South African Employment Tax Incentive (ETI) policy as a means for addressing the nation’s continuing crisis of youth unemployment. The ETI was implemented in 2014 to incentivize hiring of unemployed youth through tax benefits to employers that employ inexperienced young people. Using South African Labour Force Surveys (LFS) from 2014 to 2024, this study applies the paired t-test method to analyze variations in the rates of unemployment among the youth. The results show a decline in the rate of unemployment among youth from 60.08% to 51.28% within the 10 years with a t-statistic of 9.27 and a p-value of 0.0027, an indication of the positive impact of the ETI on the rate of unemployment. Even with such improvement, however, the rate of unemployment among the youth remains abnormally high, indicating that the policy by itself cannot overcome the complex structural obstacles in South Africa. Variations in ETI effectiveness are recorded across sectors; agriculture, manufacturing, retail and financial services were strong and more so for small enterprises. Policies recommended include targeted support to the high-potential sectors, strengthened assistance to small businesses, improved awareness creation and integration with complementary investments such as programmes on skill development and public–private partnership deals. This research addresses the youth unemployment in developing economies with persistent structural inequalities and income poverty traps.