Youth subsidy is designed to cut costs for capital

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For the past few years the youth wage subsidy has been the subject of much discussion and controversy. The youth unemployment is in crisis – 47.5 percent of young people cannot find a job.

The government continues to approve policies that undermine the working class and the poor. The Employment Tax Incentive Act is an example:

- It will not encourage real employment creation.

- It discourages decent work.

- It leads to the displacement of unsubsidised workers.

The vision of the government was summed up by the president in 2009: “The creation of decent work will be at the centre of our economic policies, and will influence our investment attraction and job creation activities.”

However, the reality has been somewhat different. Despite economic growth over the last two years the number of those unemployed has continued to rise with the latest figures showing an unemployment rate of 25.7 percent.

Even this figure is misleading as the definition includes the statement “employed persons are those aged 15 to 64 years who, during the reference week, did any work for at least one hour”.

The question, however, is how best to deal with this situation.

Although this is not a critique of the economy, a short summary of our position is necessary as we would argue that the unemployment situation must be placed in the context of the general economic situation.

The employment crisis pre-dates the global economic crisis, which may have made a bad situation worse but did not cause it. It is not a short-term problem exacerbated by the global recession but a structural problem caused by years of reliance on raw material production and exports at the expense of manufacturing industry.

Gold, platinum, iron ore, coal and diamonds are exported in their raw state and then re-imported in manufactured goods.

The situation has been made worse by incorrect macro-economic policies. Together with a strong rand, high interest rates and inflation targeting the economy has not created jobs at all, especially for the youth. It is against this background that the government’s proposals should be assessed and the extent to which the capitalist class is accommodated in protecting and maximising its profits against the interests of the ANC’s key constituency, being the working class and the poorest of the poor.

Youth Subsidy

In its document on youth unemployment, the Treasury begins by setting out a number of possible interventions but in the body of the document only considers the youth wage subsidy.

The government’s proposal envisages a subsidy paid to employers for workers aged 18 to 29 in new jobs and 18 to 24 in existing jobs. For new jobs the subsidy value is 50 percent of the wage for those earning below R24 000 and tapers to nothing at R60 000. For existing workers the subsidy is 20 percent for those earning below R24 000 and tapers to nothing at R60 000.

In both cases the subsidy lasts for two years in which the worker is considered to be “on probation”.

In order to access the subsidy the employer must be registered for tax purposes, the job must be a full-time position, they must be registered for Unemployment Insurance Fund and the company tax affairs must be in order.

The employment conditions suggested are that the job must be full-time and that the legislative design could be guided by the sectoral determination for learnerships. Ominously it continues that since the subsidy is cross-sector that legislation in this regard might be necessary.

Although these details are not all set out as final decisions the subsidy would be administered through the tax system.

Problems

Many of the problems with the system are identified by the government but are all simply brushed aside as being less important than “job creation”.

The question that has to be asked first is: will a youth subsidy create jobs?

Second, if it does, what kind of jobs will be created?

Third, we have to ask if there is not a better way to achieve the goal.

The government, and therefore the Treasury, are supposedly committed to the creation of decent jobs, in terms of the country programme’s definition of social protection, fundamental worker rights etc. Our definition is well-paid, permanent employment without the use of labour brokers and other forms of atypical employment. We have to question whether any jobs that do not guarantee these fundamentals are worth creating.

It has become clear in interaction with the government on this issue that, while the document is entitled Confronting Youth Unemployment: Policy Options for South Africa, the main thrust of the policy is not to create jobs but to reduce the cost of doing business. It is in fact nothing more than a great fat subsidy to capitalism.

Even by their own estimate, for which there is no evidence, they say that 423 000 jobs would be “created” for less-skilled youth at a cost of R5 billion to the tax income. They go on to say, however, that the net job increase would be 178 000. This is because the other 245 000 would have been created anyway. A total of R5bn which could have gone to education for youth and other social programmes and the end result over three years is 178 000 mainly low-skilled and no-skill jobs.

Most skilled youth and graduates will not be going into subsidised jobs as the job has to have a salary lower than R60 000 a year to qualify.

The evidence that it is a way of cutting costs for capitalism is shown by the fact that already existing jobs qualify for a subsidy. How many jobs does this create? Workers who are employed permanently will be reduced to probationary employees.

There is, however, no guarantee that any of these jobs will be created or that they will reduce unemployment.

There is also a danger of any jobs created becoming a revolving door. The government says this won’t happen, arguing that no employer would get rid of skilled employees. The problem with this argument is that there is no necessity for training attached to the subsidy and we are talking about unskilled youth taken on for low- or non-skilled jobs.

There would be very little lost by getting rid of workers after the subsidy ends and bringing in new workers. This is made all the easier by the fact that these workers would be on probation for the two-year period and therefore could be dismissed without much trouble.

The door is also open for substituting young workers for older employees. This has two benefits for the employer.

It can get another subsidy and it will depress wages. If you can get a young worker for R24 000 and qualify for the biggest subsidy then why continue to employ an older worker on R40 000 without a subsidy? How long before the first employer retrenches older workers on the basis that it has an operational requirement to reduce its wage bill? Either older workers will take a cut in wages or they will lose their jobs.

It is unclear why companies who pay millions to their executives need a subsidy to employ workers.

As labour we are involved in negotiations at Nedlac to end atypical forms of employment, including labour brokers, while at the same time the Treasury is busily establishing a new form of atypical employment in the form of a two-year probation period.

In conclusion, we are adamantly opposed to a scheme which amounts to nothing more than a subsidy to encourage employers to employ cheap labour, which will lead to a lowering of wages overall.

* Karl Cloete is deputy general secretary of the National Union of Metalworkers of SA.


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