What is the Youth Wage Subsidy all about?

Violence flared up in Johannesburg this week as DA and Cosatu supporters clashed over the Youth Wage Subsidy. How will the Youth Wage Subsidy work and why is Cosatu opposed to it?

The DA marches for the youth

■Treasury estimates that the youth wage subsidy will help create 423 000 jobs for young South Africans.
■The DA has been calling for the implementation of the Youth Wage Subsidy for ten years.
■Both President Zuma and Finance Minister Gordhan have stated support for the youth wage subsidy in the State of the Nation Address and Budget Speech in 2010.
■Since then, it has been stalled in NEDLAC by COSATU. Business, government and FEDUSA (SA’s second largest union federation) are for the youth wage subsidy, COSATU is the only roadblock to its implementation.
■It will only cost government R5 billion over three years to implement the youth wage subsidy. The auditor general has found that government loses R30 billion to wasteful expenditure and corruption every year. If we cut down on this waste we can easily afford a R5 billion investment to create jobs for the youth.
■The subsidy will be paid over to complying businesses in the form of a tax credit, and will therefore be administered by the SARS.
■Employers who grow their labour force by employing people between the ages of 18 and 29 will be eligible to the wage subsidy.
■The youth wage subsidy will only be relevant to those employees who earn less than R60 000 per annum. (therefore less than R5000 per month)
■An employer will only be eligible for the subsidy for two years.
■The subsidy will cover 50% of a beneficiary’s wage up to R2000 per month, after that it will cover a smaller proportion up to R5000 per month.
■Projections indicate that it would cost the state R37 000 per new job created. This is much lower than other job-creation alternatives, like the expanded public works programme, which requires a R60 000 investment by government per job created.
■Singapore had huge success with the Youth Wage Subsidy, halving their unemployment between 2003 and 2007 partly due to the implementation of a youth wage subsidy.

Why is COSATU’s against the Youth Wage Subsidy?

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1.COSATU’s argument is that the youth wage subsidy will create a two-tiered labour system, where the old get fired and the young simply get hired to replace them.
2.That this is essentially a hand-out to businesses and therefore cannot be justified.
3.That it will create distortions in the labour market.

What the DA says:

1.The wage subsidy proposal can be written in such a way to safeguard those who are already employed; it will only be provided to those businesses who expand their workforce. Therefore, the two-tiered labour force concern is unfounded.
2.Current labour legislation would also not allow for people to be fired simply to be replaced by younger people. That is illegal and cannot happen.
3.Businesses treasure their experienced employees, so they would not simply fire them to replace them with inexperienced workers. That makes no economic sense. This plan will safeguard those already employed and make it easier for businesses to expand their workforce to include young people who struggle to find work otherwise.
4.This is not a hand-out to businesses. It is a plan that will help business to employ more people. It will reward businesses for employing more people and will help the unemployed by getting more people into jobs.
5.It will not cause problematic distortions. Treasury has conducted an in-depth study of the proposal and its possible outcomes and has found that it will have an overwhelmingly positive impact, helping to create 423 000 new jobs in three years.

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