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The challenge of youth unemployment and youth wage subsidy

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The challenge of youth unemployment and youth wage subsidy

21st May 2012

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That South Africa is a noisy republic is a trait of which we should be proud. We are truly given to hyperbole. As the march of the Democratic Alliance (DA) on COSATU headquarters unfolded, focus in discussion was about the numbers on either side; who threw the first stone; and the scores of people who were injured.

With the professional football season coming to an end, the entertainment value of "the blues" and "the reds" at each other's throats cannot be underestimated. From the point of view of the DA, this marks the beginning of an uprising against 'the real centre of power' in South Africa as, in its opinion, government has ceded decision-making to the giant federation.

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It cannot be that the DA did not expect a mass and angry response to the march, from COSATU and its allies. This is not merely because of the antagonism between these two organisations which, in broad terms, stand at the extreme ends of South Africa's fault-lines of race and class. It is also because the issue at hand - about measures required urgently to deal with the challenge of youth unemployment including a youth wage subsidy - is as critical as it is urgent and emotive.

In the end and because of the chaos that it certainly should have expected, the DA got the publicity it wanted - and perhaps a few votes to milk. The alignment of forces in the debate about a youth wage subsidy is indeed a strange one. On the one hand, government has put forward the proposal and, after some eight years of internal debate, resources have been allocated for its implementation.

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The DA, ironically a ruling party in one of the provinces which decided to march on the headquarters of a union federation, claims it has started implementing the scheme. The National Planning Commission (NPC) has similarly called for "a tax subsidy to employers to reduce the initial cost of hiring young labour market entrants".

The ANC Youth League rejects the proposal. The National Youth Development Agency, staffed mainly by youth leaguers, has expressed support for the wage subsidy, on condition that there is effective monitoring of the system. Debate around this issue has been raging for many months now at the National Economic, Development and Labour Council (NEDLAC) involving government, business, workers and civil society. Indications are that we should not hold our breath, as a resolution will not come soon.

This is the actual tragedy. For, try as government may to devise long-term strategies and plans, these will take years to impact on employment generally and on youth marginalisation in particular. The global economic crisis is not helping either. What is needed is a raft of urgent interventions that will facilitate the school-to-work transition which is the bane of our society's economic and social wellbeing.

The statistics on youth marginalisation have been repeated many times: 70% of the unemployed are young people; in 2009, about half of 18-24 year-olds looking for work were unemployed; scores of thousands of university graduates are roaming the streets... To attack this problem and in addition to the 'young labour tax subsidy', the NPC also calls for driver training for school leavers; subsidy to the placement sector to prepare and place matric graduates; extension of the Expanded Public Works Programme and expansion of learnerships.

Coming back to the issue of the youth wage subsidy or whatever it may be called, where does COSATU's "callousness" against which the DA had to march originate? Why such "selfishness" on the part of employed workers? Naturally, a trade union movement has the responsibility to defend the interests of employed workers, its members. It should be expected to protest against measures it sees as having the potential to create a two-tier labour market which ultimately would lower labour standards across the board.

But why not accept this as a temporary intervention to absorb as many young people as possible into economic activity, expand the numbers of workers and potential union members, and from this beach-head push for improved standards?

The answer to these questions lies not only with COSATU and other opponents of the youth wage subsidy. It should also come from employers and all of society. This is because at the core of the wrangling on this issue is the fundamental question of trust, a crucial deficit in South Africa's macrosocial environment.

Youth wage subsidies all over the world have been shown to facilitate young people's entry into the labour market. But this is if they are implemented in a manner that deals with the many negative consequences that they can otherwise spawn.

Researchers on this issue have pointed to some of these challenges:

  • Deadweight loss - employers will take advantage of the subsidy but employ people who would have been employed anyway.
  • Substitution effect - employers will absorb subsidised young people and get rid of unsubsidised, and mostly older, workers.
  • Displacement effects - firms and industries without subsidised workers will be crowded out and general employment negatively affected.
  • Destructive churning - companies will take a group of subsidised workers and when the subsidy period for these comes to an end, they will simply replace them with new ones.
  • Corruption - the system does lend itself to graft on a mass scale.
  • And so, rather than urging for a thoughtless plunge, cogent arguments and effective measures to obviate these challenges need to be put on the table. In this regard, the NYDA may have a point in arguing that there needs to be a system of effective monitoring, which itself could also absorb young people. To the extent that these issues are addressed, generic slogans about a two-tier labour market system and poverty wages will not pass muster in the court of public opinion.

These are the issues that organised labour and organised business - led by government - have to urgently resolve. The hope, though, is that what one business commentator called "a silly" decision on the part of the DA to march on COSATU HQ, will not harden attitudes and scuttle the discussions under way.

And, sooner rather than later, government will have to weigh the pros and cons, and the capacity to obviate the potential negative effects of the subsidy, and take a decision.

Written by Joel Netshitenzhe, ANC NEC member and the Executive Director of the Mapungubwe Institute (MISTRA)

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