The debate surrounding the possible introduction of a youth employment subsidy in South Africa has heated up in recent months, with arguments for and against such a subsidy.
The South African National Treasury’s 2011 discussion paper puts forward the case in favor of the subsidy. The proposed subsidy is not yet official government policy, but it is worthwhile trying to understand how it could work and how it may benefit South African business owners. National Treasury proposes a subsidy targeting South Africans aged 18 years to 29 years old who earn less than R60 000 a year (the personal income tax threshold). Depending on whether they are new or existing workers, the subsidy (i.e. the proportion of the earnings that employers are reimbursed) would be 20% or 50%, and workers’ earnings would be subsidized for 12 or 24 months.
National Treasury anticipates that the subsidy would create an estimated 423 000 formal sector jobs in total, 178 000 of which would not have existed without the subsidy. From a small business perspective, the subsidy provides access to cheaper labor, making young adults in the 18 to 29 age group more attractive hires. This is good news for small business owners as the cost of labor can be a challenge. On the downside, however, by definition, this group of employees lacks skills and experience and the purpose of the subsidy is to give them an opportunity to acquire these.
So while small business owners may benefit from a lower wage bill in the short term, these employees are not in a position to inject fresh ideas, build on their existing competencies and skills sets to benefit the business, or leverage their networks to support the business in different ways. If anything, small business owners are likely to spend more time and effort training and managing these ‘newbies’ than they would on older, more experienced employees. In order to access the subsidy, National Treasury stipulates in its discussion paper that employers would need to provide full-time employment (defined as 35 hours per week).
Small business owners who are looking to take advantage of cheap labor by offering part-time work or finding other ways to cheat the system will not find it easy to do so. Of course, small business owners could take a longer-term view and hire young people who qualify for a subsidy with a view to employing them afterward if they prove themselves to be hardworking, productive employees. Small business owners should, therefore, think carefully about the skills requirements of the business and their own motivations before rushing to take advantage of the subsidy if and when it is approved as policy.
As it currently stands, National Treasury’s proposed subsidy aims to create formal sector employment. But given that small businesses in South Africa exist in both the formal and informal economies, one wonders whether the benefits of the subsidy are able to reach as wide a cross-section of youth as possible if the informal sector is excluded. Although targeting the formal sector may make sense for administrative purposes, this approach may exacerbate existing class divisions in South Africa. On a related point, the discussion document is silent on potential linkages between the youth employment subsidy and existing government policies on broad-based black economic empowerment and gender equality.
It will be interesting to see how this plays out if the subsidy becomes a reality.
Have your say – what do you think of the proposed youth employment subsidy? Is it a good thing for small business owners, or will it not make much of a difference?