In recent months, the issue of introducing a youth wage subsidy in South Africa to try and grapple with the current challenges of unemployment has caused heated debate amongst a number of concerned stakeholders. These stakeholders range from political parties and government, to trade unions and labour, business, civil society and the general public.  This culminated with the opposition party, the Democratic Alliance (DA) and COSATU squaring off a few months ago in Johannesburg Central, in support of and against the idea respectively. There are both arguments for and counter arguments against introducing the youth wage subsidy as a means of addressing the massive youth unemployment in South Africa.

According to the latest statistics available, 72% (about three quarters) of South Africa’s unemployed workers are younger than 34, and the unemployment rate of people younger than 25 is almost twice the national average of 25%¹. The rate of unemployment of youth in South Africa under 25 stands at a staggering 49%, which is really a cause for concern and hence, the critical response by the government to try and find means of addressing youth unemployment in the country².

The government, through the National Treasury, have thus proposed the idea of a youth wage subsidy which, in essence, encourages employers to employ more young and inexperienced workers if the costs of doing so are subsidised.The Treasury has proposed that the wages of all workers between the ages of 18 and 29 earning less than R60 000 a year – the current tax threshold – should be subsidised for a period of two years³.  Registered employers would receive the subsidy via credits on their PAYE account⁴.  According to reports, the Treasury estimates that the programme would subsidise 423 000 workers. Of these, 245 000 jobs would be created in any case, and the remaining 178 000 would be created in response to the subsidy. The Treasury estimates that some 45 000 workers would drop out of the labour force after having benefited from the programme, so the net result would be 133 000 more people employed by 2015, when the programme would end⁵. 

Arguments in support of the idea of introducing a youth wage subsidy

• According to the Treasury, the introduction of a youth subsidy would narrow the gap between the costs employers incur when employing these workers and those workers’ likely levels of productivity. This would make it an incentive for companies to employ more youth, the Treasury argues⁶.
• It has worked in other countries – studies show that it has been successful in the United States, Belgium and Singapore⁷.
• The DA, which is strongly in support for the introduction of the youth wage subsidy, in a recent memorandum presented to parliament outlined the following reasons why they are in support of the youth wage subsidy:

1. It will lower the effective cost of employment and create hundreds of thousands of jobs without an adjustment of wages or conditions of employment.
2. It acts as an incentive for on-the-job training and is a powerful remedy for reducing unemployment. Firms are rewarded for hiring, and they reward themselves by ensuring that those hired are also adequately skilled. This allows the market to take care of providing skills, rather than the state⁸.

Counter-arguments against introducing a youth wage subsidy

• The main counter arguments made against the introduction of the youth wage subsidy are that it is costly and unsustainable in the long run as it depends on how many workers the wage subsidy induces firms to employ⁹.
• It is also argued that the introduction of the youth wage subsidy may not have favour with employers who may feel that it is too risky to employ someone who is subsidised and will not be able to dismiss them if they don’t perform well due to SA’s rigid labour laws¹⁰.
• It is argued that the funds being contributed to the youth wage subsidy could be better spent elsewhere.
• COSATU is vehemently opposed to the introduction of the youth wage subsidy to reduce youth unemployment. They argue that the youth wage subsidy will be exploited by employers in the sense that an employer gets a tax break from employing anyone who is under 35 and currently unemployed. What then stops the employer from firing all the older workers and hiring only people under 35 to maximize their tax breaks?  They also argue that the old worker would be prejudiced as the younger employers might get paid more in order for the employer to get maximum tax benefits¹¹. 

It thus remains to be seen what happens with the idea of the introduction of the youth wage subsidy to reduce youth unemployment in South Africa; however, what is clear is that both arguments in support of and against the implementation of the youth wage subsidy, provide a compelling case and this is an area which will continue to garner heated debate within South Africa.

Written by Edward Thabani Mdlongwa in the Research Division - Sustainable Development Programme for AISA Focus Newsletter  Volume 17 which can be accessed  at AISA website under AISA Newsletters at http://www.ai.org.za  | Africa Institute of South Africa (AISA)

Notes

1. Centre for Enterprise and Development. 2011. Jobs for Young People is the Wage Subsidy a good idea? Available at http://www.cde.org.za
2. Ibid.
3. Ibid.
4. Ibid.
5. Ibid.
6. Ibid.
7. Ibid.
8. Democratic Alliance. 2010. Memorandum of   support for Youth Wage subsidy. Presented to the South African National Assembly at the Office of the Speaker on Thursday 25November 2010 by the DA Youth National Management Committee on behalf of the Democratic Alliance Youth. Available at: http://www.dayouth.org.za/pdfs/youthwagesubmemo.pdf

9. Labour Market Navigator.2012. Waiting for a Youth Wage Subsidy.
Available at: http://www.prophet.co.za/.../Labour_Market_Navigator_2012Q2_sample.pdf

10. Ibid.
11. Ibid.