Cosatu crying wolf on wage subsidy

THE idea of a wage subsidy that would incentivise employers to give jobs to unemployed youngsters has a long history in SA. And the trade unionists who so fiercely oppose the introduction of the youth wage incentive that the government proposes might be surprised to hear that the idea was mooted originally by economists of the left, such as the renowned US Marxist Samuel Bowles, who were advising the Labour Market Commission during the 1990s.

As it happened, the commission didn’t adopt the idea of introducing subsidies to create jobs for particular groups, or in particular parts of SA. But SA’s youth unemployment rate is now estimated at 50% (closer to 65% for black youth) and the evidence is that if a young person fails to get a job by the age of 24, chances are they will never get full-time, formal employment at all.

We face the frightening thought that an entire generation could live out their lives without ever having been in the workplace. But if they can break into the labour market, even for a while, their chances improve immeasurably.

That’s the challenge the youth wage incentive aims to try to tackle. The government proposal, which goes back more than three years, works through the tax system, enabling employers to claim a deduction on their PAYE contributions for each young first-time worker they employ who is between the ages of 19 and 29.

In its present form, the proposed legislation also includes employment incentives for special economic zones and the like — so is not just about the youth.

But it has continued to meet resolute opposition from the Congress of South African Trade Unions (Cosatu), which is now threatening strike action to prevent the legislation going through. With many in the African National Congress (ANC) apparently equally resolute that the legislation must go through, it’s not clear how far a divided Cosatu will get with this. And while the oppositional stance may win the trade union federation many brownie points with its “insider” members who have jobs, it is hard to see how it will win it much political support with the millions of outsiders who don’t. Indeed, the strength of the ANC members’ defence of the proposed legislation in Parliament this week was in some ways more notable than Cosatu’s opposition.

Nonetheless, it is important to counter some of the nonsense that has been purveyed about the youth incentive. For one thing, Cosatu’s stridency is a serious case of crying wolf. We’re talking about a small incentive which would last for only a year or two for those youngsters lucky enough to participate. Why anyone would think this would undermine the working class is hard to understand.

Cosatu is concerned that subsidised younger workers would displace the older workers who are its membership, that a two-tier labour market would be created, that there would be downward pressure on wages, and that the incentive would create space for workers to be exploited. In fact, nothing in the proposal interferes in any way with labour legislation and there is no particular reason why employers taking advantage of the incentive should behave any worse than any others. On the contrary, it could be argued that the incentive they will get paid to employ first-time workers (or workers in special economic zones for that matter) would help to make it more affordable for them to provide benefits such as medical aid and ensure proper standards for vulnerable workers.

And it is even possible that if they employ inexperienced youngsters to take advantage of the incentive, they will also make sure to employ more experienced workers who can supervise the youngsters.

So would the proposed incentive indeed work to get young people into work? We don’t know that yet. But we definitely won’t know unless we try it.