Getting the youth to work – the proposed youth wage subsidy
By Kay Walsh, Economist, Strategy and Innovation
Deloitte Budget 2012 Expectations
Johannesburg, 23 January 2012 - The unacceptably high level of unemployment is one of the most persistent and pervasive economic challenges in South Africa and the issue of job creation remains foremost in policymakers’ minds. Employment creation has is the central tenet of all the latest national government policy frameworks on economic growth and development. On releasing the ‘New Growth Path’ in 2010, a broad policy framework to guide economic development, Minister of Economic Development Ebrahim Patel noted, “This document reflects Government’s commitment to prioritising employment creation in all economic policies. It lays out strategies to enable South Africa to grow in a more equitable and inclusive manner in the future…” The National Planning Commission also notes, in its comprehensive diagnostic overview of the economy, that the ability to create jobs for more people and to improve the quality of education were central to overcoming South Africa’s social and economic challenges.
The burden of unemployment in South Africa falls disproportionately on the youth. While the official unemployment rate stands at 25%, unemployment among the youth (aged less than 30) is as high as 40%. There are a number of underlying reasons for youth unemployment that range from inadequate standards of education to a lack of relevant work experience. Youth unemployment is recognised as a major catalyst for social unrest and without addressing the issue South Africa cannot hope to address other social and economic challenges – many of which stem from unemployment.
In last year’s budget, Minister of Finance Pravin Gordhan announced an initiative aimed at reducing youth unemployment: a youth wage subsidy. An amount of R5-billion was to be set aside for a period of three years, starting in April 2012.
Essentially, the youth subsidy proposed, would involve government paying a portion of a young employee’s salary. At the lower wage rate employers will demand more workers; the lower wage also makes it less risky to hire new inexperienced employees. At the same time this would allow the youth an opportunity to enter the workforce, gain the experience that is offer a barrier to entering the ranks of the employed and eventually move on to unsubsidized jobs. A National Treasury report estimated that net job creation of about 178 000 jobs would result from the subsidy. The subsidy would be valid for a period of two years and would be targeted to low wage earners. It would be administered through SARS which would allow the government to monitor and prevent abuse of the system.
The idea has received widespread support from within both the ruling and opposition political parties and a number of trade union federations. The Democratic Alliance argues that while the policy is no ‘silver bullet’ it offers the ‘best way to start lowering the cost of employing young people without affecting conditions of employment or wage levels’.
Strong opposition to the wage subsidy has come from the Congress of South African Trade Unions (Cosatu) who argue that the policy will casualise labour, and will not address underlying structural issues (and may prejudice their members). It will be interesting to see if further details of the rollout of the proposed youth wage subsidy are provided in this year’s national budget or whether Cosatu has succeeded in putting the policy on the back-burner.