YOUTH WAGE SUBSIDY - JOB CENTRED APPROACH

Employment is vital for South Africa’s social, economic and political development. It is the key mechanism for addressing mass poverty. In addition, many other benefits flow from higher levels of employment. Many of the skills needed to improve a worker’s employability – punctuality, discipline, the ability to work with others, and so on – are most easily acquired on the job.

This is especially important in South Africa. Millions of people are the products of South Africa’s dysfunctional education system and have had few opportunities to acquire skills. For many, the workplace is the institution in which they are most likely to be able to acquire skills. Jobs also generate a sense of accomplishment, dignity and participation.

While welfare grants can provide a modest income, they cannot offer any of these other benefits, making employment growth vital to creating a more inclusive society.

As the National Treasury has stated, the proportion of working age adults with jobs may be the best measure of social inclusion in a modern society – far better in many respects than the Gini coefficient. On this measure, Brazil, where close to 70 % of adults have jobs, is a far more inclusive society than South Africa, where barely 40 % of adults have jobs even though levels of income inequality are similar.

If South Africa is to be more inclusive, far more people must find jobs, but what kind of jobs?

South Africa’s labour laws mean that any job that is fully compliant with the law is also, from an employer’s point of view, a reasonably expensive job. This is especially true when compared with the costs of employment in other developing countries. Minimum wages in South Africa’s clothing industry are two or three times higher than those for similar jobs in Swaziland and Lesotho, let alone India, Vietnam, Bangladesh and Pakistan. To justify this, levels of productivity have to be high, resulting in employers’ offering fewer jobs but for more skilled workers.

In recent decades the South African economy has generated fewer and fewer new jobs for every unit of economic growth. While some of this reflects increased productivity, much of the decline in job creation can be attributed to rising wages and increased labour market regulations, which have made employers more reluctant to hire workers, particularly those who are young and unskilled. Employers, who might be willing to incur the costs of employing highly productive workers with significant skills, are much more reluctant to do so for workers whose lack of skills and experience mean they will be less productive. This is a key reason why so many young, inexperienced workers are unable to find work.

While South Africa has sought to ensure that jobs are well paid and well protected, dynamic emerging economies in Asia have sought to expand the absolute number of jobs as rapidly as possible. Many of these jobs do not pay high wages or offer very good conditions of employment, but they do pay better than almost any alternative form of employment for unskilled people. Critically, they exist in very large numbers. Experience in Asia and elsewhere shows that once high levels of employment have been reached, productivity gains and progress up the industrial value chain lead to a rapid rise in workers’ incomes and quality of life. It also leads to much higher rates of growth for the economy as a whole.

This is the process that has lifted hundreds of millions of people out of poverty over the past 40 years. And, apart from the discovery of previously untapped natural resources, it is the only process that has ever improved the quality of life of large numbers of people in poor countries both rapidly and sustainably.

The story of Singapore’s rapid development is instructive. There, economic growth has generated a rapid change in its areas of comparative advantage. In the 1960s, shortly after independence, when unemployment was high, the country concentrated on attracting manufacturing firms, particularly in the garment and textile sectors. This was low-skilled work, but it lifted the incomes of the poor. In the 1970s, Singapore began to produce simple electronics, after which it began making hard-drives and semi-conductors. Since then, it has moved further up the value chain, with the country now having a comparative advantage in bio-medical research and development. Thus, over the decades, the country has steadily moved up the ladder of comparative advantage, with very positive implications for average wages as well as economic growth.

Honourable Deputy Speake

In response to the need to create jobs for young, unskilled workers, the Treasury has proposed the introduction of a wage subsidy for young workers at the bottom of the pay scale. Such a subsidy would narrow the gap between the costs employers incur when employing these workers and those workers’ likely levels of productivity. The Treasury argues that this would induce firms to employ more young people.