Youth Wage Subsidy and the Spectre of a Two-tier Labour Market

Linked with Congress of South African Trade Unions COSATU. – Published on COSATU, by Oupa Bodibe and Kimani Ndungu, not dated.

The Minister of Finance, Pravin Gordhan, placed the issue of a wage subsidy for young job seekers on the table in his recent budget speech. This is not a new proposal as it was tabled by his predecessor in one of his budget speeches.

As expected the response to this proposal has been highly polarised. At the one extreme, the Congress of South African Trade Unions (COSATU) led trade union movement has rejected the proposal as smacking of a two-tier labour market system. That is, a labour market comprised of a segment protected by labour legislation and another layer that faces the unregulated might of the employer. Objectively speaking, South Africa already has a two-tier labour market due to the proliferation of non-standard forms of employment like sub-contracting, casual work and labour broking. The emergence of these forms of employment has created a layer of workers that cannot realistically be said to be enjoying the rights enshrined in the Constitution and labour legislation. 

What COSATU fears is that a wage subsidy may have the effect of displacing full-time workers. A rational employer would rather choose this new source of cheap labour instead of being hobbled with expensive full-time workers. To boot this will be at the expense of the tax payer who, as Gordhan pointed out, will foot the bill through the South African Revenue Service payroll tax platform.

At the other end of the spectrum is the view popular within the business lobby and elements of the mainstream media. This group has welcomed the Minister’s proposal unconditionally as they see it as an effective means of drawing young people into employment. At the core of this approach is a belief that the labour laws and the institution of collective bargaining have raised the price of labour to the extent of blocking young workers from gaining a foothold in the labour market. As such there is a belief that workers have priced themselves out of jobs and that an intervention which supports youth employment is urgently needed. Theoretically, the neo-classical model holds that at a certain wage level, the labour market should clear, and if it does not, then there must be something hobbling the market. This is the underlying ideological attack on workers’ rights in general … //

… In the final analysis we must ask the hard question why the economy is not creating mass sustainable jobs able to drastically reduce unemployment. Part of the reason, we feel, is the lacklustre performance of our manufacturing sector which is said to have high labour absorptive capacity. Another reason may be the high capital intensity bias of many of the higher-end manufacturing, mining and services industries that are unlikely to mop up existing unemployment to any significant degree. At the same time we should learn from the sectors that have managed to absorb new job seekers, for example retail, security services, restaurants; personal and community care. In addition, we should ask hard questions about the failure of structures like the SETAs, which, despite massive tax incentives, have not created sufficient learnership opportunities to absorb the bulk of new entrants into the labour market.

We have attempted in this analysis to argue for a much broader and well-thought out process of stimulating employment creation for the youth. A youth wage subsidy, while appealing to government and employers, is a simplistic way of responding to what is obviously a set of complex, structural problems in our labour market. It will only serve to deepen our two-tier labour market not at the expense of employers, but at the expense of workers and government. Ultimately, South Africa requires a comprehensive and integrated employment creation strategy that identifies sectors with high job creation potential in both the private and public sector. The newly unveiled Industrial Action Plan is a step in that direction but it needs to be complemented by the elevation of employment creation as a priority for all government entities.
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