The DA is misreading recent study on youth wage subsidy

19 January 2014

The Democratic Alliance is misrepresenting the findings of the Southern Africa Labour and Development Research Unit at the University of Cape Town pertaining to the Employment Tax Incentive (ETI). A complete and correct reading of the recent study on the ETI in no way supports the DA's position on the youth wage subsidy.

"To deduce that the DA's 'real' youth wage subsidy would have any more or less of an impact on youth employment probabilities is a farce," says NYDA Executive Chairperson, Yershen Pillay.

The study analysed the short term effects of the ETI and found that it "did not have any statistically significant and positive effects on youth employment probabilities" since its initiation on 1 January 2014. Page 35 of the study clearly states, "the value of the incentive may be too low to substantially affect firms' hiring decisions. Related to the potential issue of the value of the incentive is a question about the magnitude of the wage elasticity of labour demand for young and relatively unskilled workers.

For the ETI to have a substantial impact, the labour demand curve for eligible workers, amongst firms that are effectively able to take up the incentive, needs to be relatively elastic. There is very little evidence to suggest that this is the case, and there is very little evidence to suggest that this is not the case."

The study confirms that there is no evidence to support the claim that a higher youth wage subsidy, as suggested by the DA, will lead to more firms employing youth.

The study further states that, "even if the ETI were to achieve its stated objective of creating 178 000 net new jobs over a three year period, the youth unemployment levels would remain exceptionally high." This is correct given that there are approximately 3.2 million young people who are unemployed according to the expanded definition of unemployment.

Two years ago the DA staged nationwide marches and aggressively campaigned for a youth wage subsidy that it claimed would create 400 000 new job opportunities for youth.

"Where they derived this figure from is mind-boggling but if one were to tentatively accept that the DA's 'real' youth wage subsidy would create 400 000 new job opportunities, it would still fall far short of the more than 3.2 million job opportunities that are needed. In fact, the DA's proposed 'real' youth wage subsidy would only create job opportunities for 12.5% of the youth who are currently unemployed," says Pillay.

"Creating opportunities for only 12,5% of youth in need would only make a scratch on the current picture of youth unemployment. What we need is a multi-pronged approach with a combination of demand and supply side interventions that would make a dent on the current reality. The approach of the DA is a silver bullet approach to addressing the challenge of youth unemployment. There can never be a silver bullet to youth unemployment in the form of an incentive or subsidy."

The National Treasury should rather spend the R5 billion set aside for the ETI on education and skills development programmes combined with youth entrepreneurship support programmes. Not only would this create more job opportunities for youth but it would probably be more sustainable than the DA's 'real' youth wage subsidy.

Statement issued by the National Youth Development Agency, January 21 2015

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