MOST employers who participated in a pilot study to test the effectiveness of a wage subsidy for young first-time workers have told researchers they would not replace older workers with young ones, merely to receive subsidy benefits.
The results of the pilot study, conducted by the African Microeconomic Research Unit (Ameru) at Wits University, have not yet been released. But the results of interviews conducted with the employers who participated in the study are known. The interviews have found that if a wage-subsidy system for youth was implemented, 70% of employers would not fire older workers, who they say are valued for being more reliable and experienced.
The "substitution effect" is the main reason why the Congress of South African Trade Unions ( Cosatu) is objecting to the youth wage subsidy, which was proposed by Finance Minister Pravin Gordhan more than a year ago.
Director of Ameru, Dr Neil Rankin, was addressing academics and policy makers at the Carnegie III Conference on Poverty and Inequality at the University of Cape Town on Friday. He said the survey of participating employers had also investigated how they selected new employees. Most employers said job seekers amounting to a third of their total workforce came to the factory gates each month.
"Huge numbers of people make direct applications. But most firms actually recruit through the use of referrals. Sorting and dealing with lots of people is expensive, but the main reason they do this is because they use referrals by existing employees as an ability signal.
"They think that a member of family or friend of a reliable employee will have similar characteristics and will keep the person in check," he said.
The youth wage subsidy proposed by the Treasury is designed to lower the risk associated with hiring less experienced and less productive younger workers. It is also designed to assist those who have no channels into the workplace through family or friends.
"The productivity of a young person is often uncertain. If a firm is facing uncertainty, they may require a discount as an incentive.
"There is also some suggestion that current starting wage rates in the market are too high for the uncertainty associated with young people," said Dr Rankin.
The youth wage subsidy is under discussion at the National Economic Development and Labour Council, along with a package of other initiatives related to youth unemployment.
The Democratic Alliance (DA) has, in the meantime, taken up the campaign for the subsidy.
Today, DA leader Helen Zille will lead a march to the Union Buildings to demand that the subsidy be implemented. The DA’s last march on the youth wage subsidy to Cosatu House in Braamfontein turned violent when DA supporters clashed with Cosatu supporters.
In a statement yesterday, the DA said it had "pushed for the implementation of the subsidy on all platforms — it is now taking the fight directly to the Presidency".
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