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‘Failed youth wage subsidy must go’

By Amy Musgrave Time of article published Jan 16, 2015

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Johannesburg - There are renewed calls for the controversial youth wage subsidy to be scrapped following the release of a study revealing that the legislation has had no significant effect on the country’s soaring youth unemployment rates.

The Young Communist League (YCL) said on Thursday that the findings supported its belief that the subsidy would not work in South Africa because many did not have the basic levels of education or skills.

Equal Education said last year’s matriculants faced bleak employment opportunities and that the policy was nothing more than a costly subsidy to business.

The subsidy, also known as the Employment Tax Incentive Act (ETI), was introduced a year ago to address youth unemployment. While it had support from some quarters in the ANC and DA, many warned that it would create a two-tier labour market system and result in older workers being displaced.

The subsidy is meant to be a tax incentive to encourage employers to hire young people. But labour brokers have been benefiting from the grant by boosting profits, without subsidising wages.

The study, conducted by the University of Cape Town’s Southern Africa Labour and Development Research Unit, said the effects of the incentive had been small in the first six months of its being introduced.

“We also find no evidence that the rate at which youth find or lose unemployment has changed since the ETI was introduced,” it states.

Researchers Vimal Ranchhod and Arden Finn said there could be several reasons for the lack of impact. It was early days and the subsidy would become more effective with time as companies started understanding the rules. Also, the way it was implemented may limit its effects.

Because it served as an incentive that was targeted at medium-sized and larger formal companies, its potential impact was limited because it was not aimed at the informal sector. Another possibility for its failure was that the incentive was too low to affect the hiring decisions of firms.

The researchers recommend that a study be conducted among companies to investigate their awareness and re- sponsiveness to the incentive.

The ETI is also criticised for being modest relative to the number of unemployed young people.

“Even if the ETI were to achieve its stated objective of creating 178 000 net new jobs over a three-year period, the youth unemployment levels would remain exceptionally high,” the document reads.

YCL spokesman Khaya Xaba said the law should be repealed and the government should instead focus on making education “fashionable”.

“The National Treasury succumbed to the pressure of the DA, and young people are now experiencing the consequences of the DA’s casuistic rhetoric on the youth wage subsidy. Cosatu was right and the DA was wrong on the youth wage subsidy,” he said.

“The government must terminate the failed youth wage subsidy and redirect the R5 billion over three years to fund more bursaries, scholarships and youth development programmes.”

Group Labour Editor

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