Youth wage subsidy not a magic wand

Categories: | Author: Politics Research | Posted: 6/12/2012 | Views: 2961

THE proposed youth wage subsidy is not a magic wand that will ameliorate all the problems of youth unemployment. It is a short-term measure that, if implemented diligently, could benefit both Cosatu and the majority of unemployed youth. 

The state of youth unemployment has reached monumental levels in South Africa: 42% of young people under the age of 30 are unemployed, while more than 70% of the unemployed are aged between 15 and 24. 

Clearly, we need short- and long-term measures to address this crisis; the youth wage subsidy is one such intervention. 

 What, then, is the subsidy about? 

According to a National Treasury document “Confronting Youth Unemployment: Policy Options for South Africa”, the youth employment subsidy aims to improve employment prospects for youth; seeks to reduce the cost and risk of hiring a young and inexperienced workforce, aims to provide on-job experience and stimulate demand for labour. All these are direct responses to the factor inhibiting youth employment. 

It is estimated it will subsidise 423 000 new youth jobs below the personal income tax threshold and create 178 000 net new jobs for young people over three years at a cost of R5-billion in tax expenditure. The projections already point to a potential maximum wage of between R2 500 and R3 000 per youth per month.
The questions that must be posed are: Why would anyone oppose such a measure? And whose interests do those who are opposed represent? Youth interests – how so?  

There are contending views – from labour, business and the youth sector – about the proposal. According to Cosatu, the youth wage subsidy will “entrench the already existing two-tier labour market ...; It might drive wages down ... Firms may opt to hire new workers who meet the criteria for the subsidy and displace existing workers from their current jobs”.

While Cosatu’s concerns are genuine, it is doubtful they speak on behalf of millions of unemployed youth. Being a membership-based trade union, it is only logical for Cosatu to defend the interests of its members – the already employed workforce, not the five million unemployed youth.

While business has generally welcomed the youth employment subsidy proposal, this is also not unconnected from self-interest. There is an expected benefit for business – from financial support from the state and a potential for increased productivity from an injection of youthful energy.

The National Youth Development Agency’s initial comment that the youth wage subsidy will “achieve very little in improving the conditions of youth” was clearly not well thought out. Their current support and call for attentive monitoring should, however, be welcomed.

While caution is advised against hyper-excitement about a youth wage subsidy, shooting the idea down without offering a tangible alternative to curbing youth unemployment, is counter-productive.

This brings us to yet another important question: What mechanisms could be put in place to allay Cosatu’s fears? Thus far, the proponents of the subsidy have neither told us how this could be done nor demonstrated how the concerns of Cosatu might be  disingenuous.

But two things can be done to address some of the concerns. The first is through a legislative instrument that will protect the rights of the existing workforce.
The legislative proposals in the treasury’s discussion paper are geared towards the protection of the rights of the beneficiaries of a youth subsidy. While this is good, it is not enough to allay the fears of Cosatu members.

An amendment to our labour law, or a new bill, should be put in place to guide the implementation of the subsidy and minimise the potential for abuse. While compliance with existing laws and processes of employment and dismissals should be maintained, such a bill must be carefully crafted to avoid blanket job guarantees for an unproductive and under-performing workforce. 

Some of these amendments may require Cosatu to make compromises – and this will be an important test for Cosatu’s commitment to job creation. In the end, both the unemployed youth and the already employed should win. 

The second thing to be done is to limit the youth wage subsidy to companies that intend to grow their operations. Companies seeking to benefit must demonstrate their growth plans and pass a means test. In addition, they should commit to absorb the youth into full-time jobs. This too should be guided by labour legislation. This may minimise displacements of the existing workforce, increase our country’s productivity rate and benefit the unemployed youth.

 There is a real challenge to stimulate the development of industries and to attract companies to start new businesses. The implementation of the wage subsidy may be one factor that will stimulate the mushrooming of industries. 

That Cosatu may benefit from the implementation of the wage subsidy is obvious. As the 423 000 young people join the ranks of the employed, there is a greater potential for Cosatu to increase its membership.  

More importantly, the decision to implement the youth wage subsidy will increase South Africa’s prospects for stability. This should be of as much interest to Cosatu members as it is to the general public. Any further delay in curbing youth unemployment will have serious consequences for our nation’s future stability. It may not be long before under-utilised youthful energy finds expression in destructive activities. 

What, then, should our long-term measures be to curb youth unemployment?
These should be directed at fixing our education system and instilling an entrepreneurial spirit among the youth.

There is a correlation between unemployment and levels of education. Currently, more than 86% of unemployed youth do not have further or tertiary education, and two-thirds of them have never worked. Over 600 000 graduates in South Africa remain unemployed while the private sector has 800 000 vacancies. This is a clear picture of an education system and economy going in two different directions. 

A new transformation agenda is required for our education system to stop producing ill-prepared job seekers in an economy that requires a critical mass of entrepreneurs. We need to reorientate our education system towards entrepreneurship. 

Consideration should be given to introducing entrepreneurship into the school curriculum at an early stage. This could be made compulsory from Grade 10 up to undergraduate level. We must plant the seeds of entrepreneurship among the young and dispel the notion that one needs an MBA to start a business. Evidence across the world suggests self-employment in small-scale enterprises is a sure way towards economic emancipation.

The wage subsidy is a necessary short-term intervention that can rescue scores of young people from the crunching jaws of unemployment. In the long term, attempts to rescue South African youth from the reservoir of joblessness and poverty ought to be directed to addressing the poor state of education. A new philosophy of education is required to reorientate our youth away from yearning to get jobs to creative hopes in entrepreneurship.
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