Youth wage subsidy

Submerged in conflict

July 5th, 2012

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Tags: youth wage subsidy, unemployment

Youth subsidy

The youth wage subsidy has been a topic of debate. Why has the issue of youth unemployment, as opposed to the problem of unemployment overall, come to the fore now and why has it become an issue that has been embroiled in politics?

Why is youth unemployment suddenly a problem now?

The National Treasury published a discussion paper in February 2011 titled, Confronting Youth Unemployment: Policy Options for South Africa. The paper showed that unemployment in South Africa was especially problematic when only 12.5% of youth in this country were employed, while 40% were employed in other developing countries.

‘Youth workers’ are identified as those between the ages of 15 and 25 years old. At the time the discussion paper was published, 86% did not have tertiary or further education, while two-thirds of those youth had never been employed.

The problem of youth unemployment has worsened over the last two years as a result of the recession. Employment of 18- to 24-year-olds fell by more than 20% (320 000) between December 2008 and December 2010, compared with an overall decline of 6.4%. The unemployment rate among those under the age of 25 is about 50%, accounting for 30% of total unemployment. Those aged 25-29 adds yet another million to the unemployed figures.

Problems that youth face in finding jobs

Two of the biggest problems facing youth employment is the lack of skills to become employed and, secondly, the lack of experience in the workplace. Employers view inexperienced skilled workers as a liability, the paper reported, and neither is education a replacement for experience. The Annual National Assessment results of 2011 showed Grade 3 learners scoring an average of only 35% in literacy and 28% in numeracy tests. This low quality of school education in South Africa makes employers dubious of youth employees’ capabilities.

In addition, employers consider the entrance level wages for youth as being “too high, relative to the risk of hiring inexperienced workers”, the Treasury paper noted, due to the cost of firing and hiring people being expensive.

What the youth wage subsidy proposes

For those who have finished their schooling and now have to find a job, the government has proposed implementing a youth wage subsidy that would subsidise 423 000 new jobs for young and less skilled people aged between 18 and 29 years old. It would cost R5-billion in tax expenditure over three years.

The wage subsidy would reduce the financial cost to firms hiring youths without knowledge of their productivity and, at the same time, make the training of those employees more affordable. In addition, as the Treasury research paper suggested, the wage subsidy would encourage job seekers to become more active in their job search.

In his Budget Speech earlier this year, Finance Minister Pravin Gordhan announced a R207-billion injection into the education sector for 2012/13, which would hopefully increase future employers’ faith in the education of young employees.

Skills training programmes are still equally important in order to alleviate skills shortages in the economy and the National Skills Development Strategy still works to ensure providing responsive education and training implemented by the National Skills Fund and Sector Education and Training Authorities which have been effective since 2000.

Arguments around the subsidy

One of the complaints about the youth wage subsidy has been that it will severely affect the taxpayer. Indeed, having to support a large percentage of unemployed citizens is problematic as well.

As poverty and unemployment increase, so must social spending on these people in the form of unemployment funds and other social grants or, as the government has been forced to do, use taxpayers’ money to create what the Free Market Foundation (FMF) calls ‘pseudo jobs’.

The workplace should be viewed as a training ground that is incentivised by financial assistance from the government.

In countries of the Organisation for Economic Co-operation and Development, it is common practice, if not policy, for school-leavers or students of a particular training to gain work experience.

As with everything, there will be loopholes where employees may gain windfalls by such a system, but implementing the youth wage subsidy means – as Gavin Keeton of the Economics Department at Rhodes University points out in Business Day – that we are doing something to alleviate the problem of unemployed youth.

Moreover, it is giving people a chance at dignity and self-belief that they can be part of a functioning economy.

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