Wage subsidy necessary for stability

THE youth wage subsidy proposed by the national Treasury, and which has since created a war between Cosatu and the DA, is not a magic wand that will ameliorate all the problems of youth unemployment.

It is a short-term measure that, if implemented diligently, could benefit both Cosatu and the majority of unemployed youth.

The state of youth unemployment has reached monumental levels in South Africa: 42% of young people under the age of 30 are unemployed, while more than 70% of the unemployed are aged between 15 and 24.

We need short- and long-term measures to address this crisis; the youth wage subsidy is one such intervention. What, then, is the subsidy about?

According to a national Treasury document, Confronting Youth Unemployment: Policy Options for South Africa, the youth employment subsidy is aimed at improving employment prospects for the youth, seeks to reduce the cost and risk of hiring a young and inexperienced workforce, aims to provide on-the-job experience and stimulate demand for labour.

All these are direct responses to the factors inhibiting youth employment.

It is estimated it will subsidise 423,000 new youth jobs below the personal income tax threshold and create 178,000 net new jobs for young people over three years at a cost of R5-billion in tax expenditure.

The projections already point to a potential maximum wage of between R2,500 and R3,000 per youth per month.

The questions that must be posed are: Why would anyone oppose such a measure? And whose interests do those who are opposed represent? Youth interests - how so? There are contending views - from labour, business and the youth sector - about the proposal.

Cosatu says the subsidy will "entrench the already existing two-tier labour market. It might drive wages down. Firms might opt to hire new workers who meet the criteria for the subsidy and displace existing workers from their jobs".

While Cosatu's concerns are genuine, it is doubtful they speak on behalf of millions of unemployed youths. Being a membership-based trade union, it is only logical for Cosatu to defend the interests of its members - the already employed workforce, not the 5-million unemployed youths.

While business has generally welcomed the youth employment subsidy proposal, this is also not unconnected to self-interest.

There is an expected benefit for business - from financial support from the state to a potential for increased productivity from an injection of youthful energy.

The National Youth Development Agency's initial comment that the youth wage subsidy will "achieve very little in improving the conditions of youth" was clearly not well thought out. Their current support and call for attentive monitoring should, however, be welcomed.

While caution is advised against hyper-excitement about a youth wage subsidy, shooting the idea down without offering a tangible alternative is counter-productive.

This brings us to yet another important question: What mechanisms could be put in place to allay Cosatu's fears? So far the proponents of the subsidy have neither told us how this could be done nor demonstrated how the concerns of Cosatu might be disingenuous.

But two things can be done to address some of the concerns. The first is through a legislative instrument that will protect the rights of the existing workforce. The legislative proposals in the Treasury's discussion paper are geared to the protection of the rights of the beneficiaries of a youth subsidy. While this is good, it is not enough to allay Cosatu's fears.

An amendment to our labour law, or a new bill, should be put in place to guide the implementation of the subsidy and minimise abuse.

While compliance with existing labour laws should be maintained, such a bill must be carefully crafted to avoid blanket job guarantees for an unproductive workforce.

Some of these amendments may require Cosatu to make compromises. In the end, both the unemployed youth and the already employed should win. The second thing to be done is to limit the youth wage subsidy to companies that intend to grow their operations.

Companies seeking to benefit must demonstrate their growth plans and pass a means test. In addition, they should commit to absorb the youth into full-time jobs.

There is a real challenge to stimulate the development of industries and to attract companies to start new businesses. The implementation of the wage subsidy may be one factor that will stimulate the mushrooming of industries. That Cosatu might benefit from the subsidy is obvious. As the 423000 young people join the ranks of the employed, there is a greater potential for Cosatu to lift its membership.

More importantly, the decision to implement the youth wage subsidy will increase South Africa's prospects for stability. This should be of as much interest to Cosatu members as it is to the general public.

Any further delay in curbing youth unemployment will have serious consequences for our nation's stability. It might not be long before under-utilised youthful energy finds expression in destructive activities. What, then, should our long-term measures be to curb youth unemployment?

These should be directed at fixing our education system and instilling an entrepreneurial spirit in the youth. More than 86% of unemployed youth do not have further or tertiary education, and two-thirds have never worked. More than 600,000 graduates in South Africa remain unemployed while the private sector has 800,000 vacancies. This is a picture of an education system and economy going in two different directions.

A new transformation agenda is required for our education system to stop producing ill-prepared job seekers in an economy that requires a critical mass of entrepreneurs. Entrepreneurship should be introduced at school at an early stage. Evidence across the world shows self-employment in small-scale enterprises is a sure way towards economic emancipation.

In the long term, attempts to rescue the youth should address the poor state of education.

• Malada is a senior researcher at the Forum for Public Dialogue. He is also a member of the Midrand Group
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