The Youth Wage Subsidy

This was my contribution to the debate in the Western Cape Provincial Parliament this afternoon on the broader subject of the Youth Wage Subsidy. The debate itself was framed with this motion, moved by a DA MPP:

“That the House debates the recent and continuous actions of Cosatu against the implementation of the national Youth Wage Subsidy and the impact that these actions have on the Western Cape;  notes that the point of view of Cosatu in this regard is preventing unemployed young people from gaining access to the economy; and through these actions, Cosatu is exposed as an organisation that is not in touch with the needs of the poor and is opposed to the creation of new jobs.”

Unfortunately, the governing party (the DA in this case) only allows me two minutes to deliver my speech, even on an important subject like this. This is not unique – sadly they are simply following the ANC example set at National Parliament, which all opposition parties continuously object to.  This is the expanded version that would never fit into two minutes:

“There is broad agreement among most South Africans as to the urgent need to urgently and sustainably increase youth employment. Various prominent South African economists including Dawie Roodt (of The Efficient Group, a financial services group) and Mike Schussler have agreed that its implementation is a good idea, even though Mr. Roodt has been critical of both Cosatu and the DA in terms of some aspects of their approach to this debate, and rightly so, particularly in terms of the street politics both have resorted to recently, and which I have commented on (Read it here).  There is also some scepticism as to whether a youth wage subsidy will in fact benefit the labour market, the unemployed and the economy in a sustainable way.

In my view,  the primary question relating to the Youth Wage Subsidy relates to the timing of its implementation rather than on whether it should be simply rejected or supported.  Since very serious challenges remain unresolved in terms of the drafts presented by government and the DA , the timing question is: “Should the youth wage subsidy be implemented before or after these concerns are resolved?”

Among the challenges raised by economists, academics and political commentators, I wish to highlight that:

  • The subsidy would only fund 50% or less of the beneficiaries salary.
  • Employers would only benefit for the duration of the subsidy, not in the long term because there is no guarantee that those employers will be able to afford to keep these beneficiaries on once their subsidies expire.
  • Monitoring and evaluation mechanisms have not been defined yet this in itself could also provide employment opportunities for people within the target group.
  • While the subsidy is expected to help create an estimated 423 000 jobs for young South Africans, it will cost the government R5 billion over three years to implement, or about R37 000 per new job created.

Joel Netshitenzhe, currently the executive director of the Mapungubwe Institute (Mistra) and member of the (NPC), and the then head of policy coordination and advisory services in the former Mbeki Presidency, wrote an excellent article (Read it here) from which I have sourced 5 further, vital challenges to implementing a youth subsidy programme as currently proposed.

“Researchers on this issue have pointed to some of these challenges:

  • Deadweight loss – employers will take advantage of the subsidy but employ people who would have been employed anyway.
  • Substitution effect – employers will absorb subsidised young people and get rid of unsubsidised, and mostly older, workers.
  • Displacement effects – firms and industries without subsidised workers will be crowded out and general employment negatively affected.
  • Destructive churning – companies will take a group of subsidised workers and when the subsidy period for these comes to an end, they will simply replace them with new ones.
  • Corruption – the system does lend itself to graft on a mass scale.”

In response to my speech, the Western Cape MEC of Finance, Economic Development and Tourism), Alan Winde stated that they expect only a 50% retention rate of these job skills opportunities.  If this is accurate, then surely the cost of implementation would be double the DA’s estimated R37,000 per job.  This is very worrying and questions regarding the affordability of their proposal then become even more relevant.

In my view, these challenges must be resolved before rather than during implementation.  So whilst the DA have described implementing the youth wage subsidy as a ‘smart-state’ intervention, the truth is that a ‘smart-state’ would never begin implementing it until all these challenges are resolved, rather than trying to resolve them during implementation, which would be like making mechanical adjustments to a car whilst driving it down a highway.

A smart state would take the responsible, balanced approach.  The DA should agree and drop their perceived ‘implement now regardless of the challenges’ approach.  If not, then their assurances that they are not using this issue as a political football, are fictional.

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