Young People Navigating the Labour Market Issues facing young people in accessing the labour market

Some policy proposals that are being discussed

In addition to the policies and interventions that are already in place, and that have been highlighted above such as the youth brigades, there are also a number of others proposals that are being considered:

1. Re-directing PIC investments through a Job Creation Index

One suggestion made is that the Public Investment Corporation (PIC) through the Government Employees Pension Fund could place greater levels of pressure on firms to, at a minimum, report the number of jobs per unit of output they have directly and indirectly created in the course of any given financial year. Linked to this proposal it was suggested that the initiation of a ‘Job Creation Index’ of these listed companies could become a vital additional criterion by which the PIC’s investment flows and mandates are shaped and determined. In effect, it could be a powerful manner in which to incentivise investment in companies (Bhorat 2012). Bhorat further proposes that the state could effectively fund and support those companies, which are job creators through the launching of a Job Creation Index Fund on the JSE. Traded Index Funds or ‘tracker funds’ are now a key part of any institutional and individual investors’ profile. This could be an effective means of channelling investable funds to those companies exhibiting high employment creation levels in the domestic economy (ibid).

2. Changes to labour regulation

There are a number of debates relating to the issue of ‘Cost of Doing Business’: Bhorat (2012) conducted an analysis on the mean measures of regulation. He finds that “while firing and hiring costs, together with the hours rigidity index are below the global average, it is the hiring and firing rigidity measures which are noticeably above the world mean”. At the heart of the labour market flexibility debate in South Africa is the legislation that currently governs fixed-term contracts and the clauses governing dismissals and unfair labour practises (Bhorat, 2012). Bhorat suggests that relaxing these legislations could influence businesses to hiring more labour when they are less certain of their performance, i.e. making use of unskilled labour. This picks up on a point raised in the NDP, which states that, “labour-market reforms aimed at promoting employment, particularly of young people”, are necessary. It states that probation allows employers to assess the suitability of employees. It is set for a specified period, often six months, to determine whether a new employee fits in based on capability, performance, personality, culture and other factors. Probation allows the new employee the opportunity to perform, but also gives the employer the chance to avoid undue risk. Uncertainty about the application of current provisions undermines the willingness of firms to hire inexperienced workers. It proposes that to ease entry into formal work opportunities, ordinary unfair dismissal protections should not apply to employees on probation, up to a limit of six months of service. This means that the contract is assumed to be limited to the probationary period, unless confirmed otherwise. To prevent the abuse of terminating and re-employing just before the probationary period expires, the period of service could include all previous service with the employer, whether directly or through a temporary placement agency. It also makes recommendations regarding dismissals, labour regulation for small business, and regulating temporary employment. The NDP also states that wage determination must be conducive to employment and equity objectives. Some considerations include: Ensuring a fair division of earnings in a context of extreme inequality; Determining affordable wages that support economic expansion; Recognising the need to achieve a social floor, including the social wage (for example free basic services and transport costs) and measures to reduce inflation of basic commodities and that of administered prices. Bhorat specifically suggests that by encouraging a looser labour market, it would enable young people to move around the job market more effectively and would also enable employers to replace staff more easily – and therefore increase their willingness to employ new entrants. This proposal is, however, very contested and others argue that there is little evidence that labour market flexibility would have any effect on the absorption of new entrants.

3. Financial assistance for job search

Looking for a job can be expensive in relation to the amount some people have to spend. One option that is being considered is to give work seekers the resources to collect the information on their own. A “stipend for job search” is emerging in the United Kingdom (Dolton & O’Neill 2002, and Wurmli, 2010). In the UK context, proponents of this approach argue that this form of conditionality motivates beneficiaries to use resources to look for a job rather than solely to replace lost income as unemployment insurance does (Wurmli 2010). This mechanism is particularly effective when combined with job intermediation services (Van Reenen, 2003): that is, a service that can support placement in the labour market.
In the South African context, the majority of these work seekers are not eligible for unemployment insurance, as they have not worked before. However, the bulk of available evidence⁹ concerning job search assistance programmes suggests that provision of such programmes are critical as they improve the labour market outcomes of participants relative to non-participants, and that these kinds of programmes may be more effective than other ALMPs such as subsidy schemes. Typically, job search assistance programmes are shown to have significant short-run effects in reducing unemployment, with the added bonus that they are relatively cost-effective to implement.
This is confirmed by a study, which considered factors pertaining to the transition from school to work in Flanders (Vanoverberghe J et al, 2008), which found that a decisive factor “for a speedy transition process (ibid, page 329)” is the level of search intensity. Their research also suggests that those who start their job search prior to leaving school have a substantially shorter period of joblessness and highlights the role that schools could play in this process through the provision of information about job search strategies.
There is other evidence, as reviewed in Smith (2006) which shows that job search assistance is particularly beneficial in reducing short-term unemployment, where workers are between jobs.
Rankin et. al. (2012) argue that, despite the good intentions of a job-seekers grant policy, it is unlikely to create new jobs as it would have little or no effect on the cost of employment that businesses face. In addition, they suggest it may cause firms to increase their reliance on a word of mouth method, because the greater the number of applicants the higher the costs of recruitment – because of the costs associated with sifting through applicants (Rankin et. al., 2012). However, recent evidence emerging from such programmes in South Africa suggest that where financial assistance for job search is coupled with a process of supporting improved assessment, placement and matching, then employers are more willing to consider employing this target group. The long term effect on new jobs still need to be evaluated.

4. Wage Subsidy (Youth)

The intent of the wage subsidy is to reduce the cost of labour to an employer, which reduces the cost to company. This is seen as relevant as the cost of labour is perceived to be too high to attain full employment (Fedderke, 2012). The subsidy could in effect lower the labour cost, resulting in labour being a cheaper input in the production of goods and services. This in turn provides a compelling incentive to make production more labour intensive. Hence the demand for labour and employment would increase. Research by Rankin and the University of Witwatersrand show that a subsidy improves employment chances by at least 25% (Paton 2013).
Treasury proposes that the subsidy will be available for young and less skilled people aged between 18 and 29 years old earning below the personal income tax threshold. It will be available for a maximum of two years and have a maximum value of R12 000. This is approximately half of the average income of a formal-sector worker aged 18 to 29 years old and eligible for the subsidy¹⁰. An announcement of the subsidy was first made during the 2011 Budget Speech, and was then confirmed in 2013. The implementation of the subsidy is still hotly contested between various parties and unions.
Arguments against the study are founded on deadweight loss and displacement. There has been strong opposition to this intervention by Cosatu who argue that a youth subsidy will lead to older workers being replaced by younger ones. Most typically this would only occur where experience is not a highly valued attribute, but it could be seen to occur in the low wage, low skill sector of the market. In a study by Rankin & Schöer (2011) this is disputed as they found that substitution of existing workers by younger, inexperienced workers seems less likely. In a survey of firms they found that over three quarters of the respondents stated that they would not replace workers with subsidy holders owing to the premium that they put on the experience of older workers.
Deadweight loss, on the other hand, is based on the notion that the subsidy is paid to the youth unemployed who would have been hired even had the subsidy not been implemented. The greater the deadweight loss, the lower the effect on employment resulting in a limited effectiveness to improve the labour market position of youth unemployment. In a stagnant economy this is likely to happen. Based on current experimental research by Rankin, there are further benefits: the individuals receiving the subsidy are more likely to remain in employment as opposed to those who had not. This finding showed that the subsidy had the intended positive effect on employment.
Other proposals suggest that the wage subsidy should not be used exclusively to finance the remuneration cost, rather the subsidy could increase the possibility of young people receiving on-the-job training, as it becomes more affordable for employers to do so. It is argued that in turn, this would allow workers to gain work experience and improve their productivity, which is something they might not have been able to achieve in the absence of a subsidy. In the long-term, it is argued; this will improve their long-term employment prospects.

5. Transport Subsidy

Previous apartheid laws have meant that over a decade and a half into democracy, residential areas continue to be defined, in the main, by race in South Africa. One of the arguments often made for the economy’s high unemployment rates, is that spatial apartheid does not allow for optimal search behaviour amongst the unemployed. It is extremely expensive for unemployed young people resident in poor communities at the fringes of metropolitan areas or rural areas to go out and search for jobs, this is part of the reason for so many people falling into the ‘not economically active’ category (Bhorat 2012).
A transport subsidy attempts to bridge the gap between outsiders living further away from the market place, by enabling them access to opportunities and making it more affordable to find employment. This is seen as critical as the unemployed are often in on the fringes of metropolitan areas or in outlying rural areas, far from any employment opportunities, and they lack both the networks and skills to access employment opportunities in urban areas. The unemployed in these areas are often too budget-constrained to go out and search for work hence the cost of looking for work is unaffordable. The incentive to look for work is low given the low probability of finding a job coupled with the high cost of transport.
The National Planning Commission is currently exploring the possibility of a transport subsidy and has instituted a randomised control trial to assist government to understand the impact of such an intervention.

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