By Mat Cuthbert
The critique levelled at the DA’s proposal to empower millions of young, jobless South Africans through a Youth Employment Opportunity Certificate (YEOC) has exposed how out of touch Cosatu is with the reality on the ground.
The truth is that South Africa is facing a man-made unemployment crisis. At 41%, the world’s highest unemployment rate is dwarfed only by the highest youth unemployment rate in the world at 71%. While government officials often cite external shocks such as the global financial crisis and the Covid-19 pandemic as the culprits, the rest of the world – both emerging and developed – has rebounded mainly from these disruptions. South Africa has all but done so, and in 2024, the real number of employed individuals remains tragically similar to 2008, despite a near-doubling of our population.
Well-intentioned but misguided labour policies engineered by the ANC-Cosatu-SACP’s “Unholy Alliance” have throttled investment, put a handbrake on growth and resulted in an ever-growing unemployment queue.
Depending on a country’s market structure, introducing wage regulations may positively impact employment. However, this is not the case in South Africa. Dealing with the unemployment crisis will require the government to acknowledge that enabling regulation and legislation must be in place so that South Africans wishing to enter the labour market are not legally prevented from doing so.
Small businesses, which support more than 60% of all jobs in the country, are particularly crucial in this context. The labour laws that burden large companies are even more restrictive for small enterprises, especially in industries where the labour minister enforces "sectoral determinations”. This practice permits the government to extend a minimum wage agreement, or wages negotiated between unions and businesses at a bargaining council, to an entire sector – regardless of whether affected businesses participated in the council’s proceedings or not.
Rather than being profit-driven corporate tycoons focused solely on maximising shareholder returns, many small business owners are local entrepreneurs seeking to utilise their skills and provide jobs within their communities. They often operate on tight margins and struggle to navigate increasingly complex and burdensome labour regulations. This is a critical issue because the small business sector is the most prominent employer in the country, and lowering our unemployment rate will require many more of them. However, the opportunity cost of compliance with these regulations is becoming too high, making it increasingly difficult for small businesses to establish themselves, operate profitably and ultimately survive.
A wage floor intensifies this burden by raising the barrier to entry into the workforce for young workers. Particularly if they are less skilled, inexperienced and a part of a historically-marginalised group. Suppose the cost of labour exceeds the value added by an employee (their marginal productivity). In that case, it becomes economically unviable for a business to maintain a profitable position without sacrificing other aspects of its operations, considering that small businesses lack the financial flexibility to absorb arbitrary increases in labour costs. The only sensible response would be to either reduce headcount, stop expanding and diversifying its workforce, or cut hours – the alternative would be to close the doors.
Unfortunately, the “Unholy Alliance” has chosen to ignore this fundamental economic reality. Consequently, millions are locked out from employment opportunities and either earn nothing while sitting at home or are “employed” at around R2 an hour through the SRD grant, with no added experience or networking opportunities.
It is a crime that millions of South African job seekers are told that they may not work by the state. I am certain that most of these individuals would prefer the dignity of being employed at a rate they subscribe to, even though it may be lower than what the minimum wage law prescribes, as opposed to not working at all.
Instead, the “Unholy Alliance” have worked tirelessly to peddle harmful misconceptions about a policy proposal that will undoubtedly provide millions with an opportunity to take the first step onto the opportunity ladder.
It is essential to dispel these misunderstandings:
It is a myth that the YOEC is the first step towards abolishing the minimum wage, which will remain at its current level. This certificate is a completely voluntary option for individuals unemployed for 12 months or more, allowing them to negotiate a wage below the minimum with a willing employer.
Existing workers will be unaffected. The YEOC is about empowering those currently earning nothing due to prolonged unemployment. If someone desires to break out of this cycle by accepting a lower wage, government restrictions should not prevent them from doing so. This is about the freedom of both job seekers and employers to reach mutually beneficial agreements.
All employers who employ a YEOC holder will also be required to provide workers with formal skills development training, which the National Skills Authority will oversee. This will ensure that these job seekers are absorbed into the workforce and upskilled for the future.
This is how the YEOC will remedy the single most pressing issue facing South Africa. It highlights the importance of market-driven wage determination and sidesteps the negative consequences of top-down statist policies that prioritise the “Unholy Alliance’s” interests at the expense of workers, consumers and entrepreneurs.
The unintended consequences of governmental wage controls, which were touted as a safeguard for the vulnerable, have robbed countless young people of earning a living. They have shielded employed workers from competition and left the jobless behind. Without these restrictions, lower-skilled workers, small businesses and households would be able to flourish.
Mat Cuthbert is the DA’s head of policy. He is writing in response to the Business Report article, which appeared last week, by Solly Phetoe.
BUSINESS REPORT