Minister Pravin Gordhan reintroduction of the proposals around the youth subsidy is a brave political decision, given the overwhelming and justifiable criticism of the proposal. In tabling the new proposal Minister Gordhan has listened to the criticism and opted to tweak the proposal. The first proposal provided a wage subsidy or hiring voucher to lower cost of labour and compensate employers for the perceived risk of hiring inexperienced workers. In tweaking the proposal, government has shifted from this position, so that it is now to be administered as a tax credit. This is significant step as it potentially means that entry-level wages will remain the same.

Tackling Youth Unemployment

The motivation for the proposal according to the National Treasury  is three-fold:

1. Compensates employers for taking on young employees where productivity is unknown.
2. Offsets the risks or costs associated with training young workers
3. Encourage job search behaviour because youth believe they will be able to find work

Designing for Job Creation

The subsidy will have the following features:

• Implemented from 1 April 2012
• Run through the Pay As You Earn (PAYE) system operated through the South African Revenue Service (SARS)
• Budget of R 5 billion over the next three years.
• Qualification criteria are that workers must be aged between 18 and 29, and that their wages are below the tax threshold (raised to R 59 750-00 in the current budget)
• Provide R 28 000 per job, with a potential to create net new jobs estimated at 178 000 .

Consensus Building

Government is acutely aware of the challenges to the youth subsidy, and have set the implementation date for 1 April 2012. During the next year, the proposal will be debated in social dialogue institutions, especially at NEDLAC and whatever processes are initiated to discuss the New Growth Path. The prospects for successful implementation are high, due to:

• Addressing trade union concerns on the creation of dual labour market, by keeping wages the same. In a sense, it meets the principle of “equal pay for work of equal value” that is a core principle of trade unionism.
• It reduces the cost of employment of young workers for employers, and as such may support new hires in companies.

Minister Gordhan has played a smart hand, and reopened an uncomfortable but important discussion on youth unemployment.
[Editor Note: Zapreneur will look more closely into the proposals in the coming week]
Photo Credit: Media Club South Africa