The campaign for a youth wage subsidy fits well with the “common sense” truth in the business press that ordinary wages are too high and unions are too strong. The youth wage subsidy is just “an entry point to a war” Congress of South African Trade Unions (Cosatu) general secretary Zwelinzima Vavi was reported as saying (Business Day, 30/5).
Conventional wisdom says employers prefer older workers. But there is indeed a difference between appearance and reality. The SA population is very young and every year about 400 000 young people join the labour force. In our country, more than anywhere else, the mass army of unemployed is mainly recruited from the young.
Table: The number of people in each age group, from children (left) to old people (right) (Source: Stats SA).
Young people have a weaker bargaining position. They are inexperienced, but more open minded. This also means they are malleable and often not members of unions. SA employers like that. If learning on the job can be arranged or inevitably takes place, why should profit maximising firms not prefer young employees? Indeed, they in fact do that.
Young people are paid wages far below what they create!
“The Treasury says that the youth wage subsidy aims to narrow the gap between entry-level real wages and productivity for young people. Nowhere does the Treasury document compute this alleged gap. The ‘large gap between the real wage and productivity for young people’ is actually the opposite. Using Stats SA wage statistics, neo-classical economics tells us that young people are supposed to be paid on average R3 264 per month. They earn only 78 percent of that wage. This means that the state must grant a subsidy to young workers rather than to employers. The situation is worse for workers aged between 15 and 24 years, who are 10 percent of the total employed. Their real wage averages R2 251 per month. Even according to the neoliberal theory that the Treasury is using, these young workers are only paid 39 percent of what they really should be paid.” Cosatu economist Chris Malikane freely quoted from Sunday Independent (17 June).
Youth Labour is already cheaper!
Youth labour is already priced down by about 20 percent and more. According to “Monthly earnings of South Africans 2010” (Stats SA), half of the 8 million formal and informal employees between 30-64 years earn R3000 or less per month. But half of the 3 070 000 workers between 18-29 years of age earned R2383 or less. In its February 2011 discussion paper, the National Treasury said that “the subsidy to new eligible workers lowers cost of hiring young, less skilled workers by about 23.5 percent”. On the average, the suggested subsidy doubles the rebate on youth labour to 40 percent odd. For the young workers with the lowest wages, the Treasury is prepared to place up to R12 000 in the pocket of employers, paying half of their usual wage of R24 000 per year.
The argument that young people are unemployed because they are young, appear in the documents of the Treasury and of the DA. “Young people are particularly disadvantaged in the labour market” says the Treasury in the discussion document from February 2011. But the numbers provided in its discussion document indicate that questions such as “why are employers reluctant to hire young workers?” are wrongly put. This is what the Treasury said about the “employment elasticity of growth” for young people:
“Over the period 2003 to 2008, employment of 18- to 29-year-olds grew at an annual rate of about 6%, expanding at a faster rate than gross domestic product (GDP) growth (5%).”
That means that when the economy grows, youth employment grows faster. During the 2000’s the employment of young people increased ten times more than employment of old people over thirty for each percent of growth in the economy (GDP). The employment of people who are older than 29 years grows much slower than the economy. There is no discrimination against youth as such! The problem is that young people are so many. Of course those young people who passed matrix and secondary school, or have had some work experience, have a big advantage over other young people. But mass youth unemployment as such is created by the youthfulness of the population, in a situation where the economic system fails to organise enough people in useful work. We have for example 80 000 vacancies at the hospitals. Educate and employ! A young population should be an enormous asset to a country, not a problem.
That there is nothing wrong with South African youth is confirmed by labour brokers. In a propaganda booklet “Jobs for Young People”, Loane Sharp from Adcorp writes that the company hires out “about 200 000 people a year”. “92 per cent are African, 85 per cent are younger than 24, and 50 per cent have never worked previously”. Adcorp is the largest labour broker. Its workforce is hardly atypical. We can estimate that 90 out of 100 workers hired out by labour brokers are between 18-29 years of age. Building companies, mining companies, all type of private businesses, but also state offices, hospitals, universities and parastatals like Eskom, they all like young workers very much. But they shun social responsibility, minimum wages and costs for permanent workers.
Loane Sharp also testified to the enormous pressure on youth wages. “Over the past eight years an entry-level employee in our organisation has earned the same nominal wage. So an 18-year-old employed by us today earns the same as an 18-year-old with equivalent qualifications did eight years ago”. This is a decrease with more than 35% in the real buying power of that wage, due to eight years of inflation. This is the process a subsidy will, of course, speed up.
In Business Day (25/5), Loane Sharp finally came out to “Smash-the-unions”. Just as for the DA, the ambitions are to cut wages in general. “Young people (…) can only compete by offering themselves to employers at lower wages, which in turn tend to lower wages for all workers”, wrote Loane Sharp. This is why the public should oppose a wage subsidy to the employers. It is a part of the race to the bottom.
The employers will dodge from control and rules. This is reflected in the fact that the subsidy also will be paid to young people already employed! There is only one reason for this. The Department of Labour is too weak and toothless to allow for a rational arrangement. In other words, it is set out from the very start that the subsidy will waste money and trigger a process in which old employees are substituted by the youth. More than half of the workers are already paid below the minimum wages in the law. Labour laws are generally disrespected in South Africa. Our labour market isn’t a Sunday walk. Rules are there to be broken.
What could then immediately be done?
The prospects of expansion are slim: the international crisis has not subsided and the local markets are crippled by poverty wages. In this situation, the mysterious annual surplus of R8bn in the Unemployment Insurance Fund (UIF) could be used to facilitate the greatly needed expansion and improvement of the Community Work Program, combining it with further education of young people.