He was doing so well, Cyril Ramaphosa. Urbane, affable and self-deprecating, the deputy president had the dinner audience at Harambee’s annual youth unemployment conference outside Cape Town hanging onto his every word.
Everyone serious about tackling SA’s youth unemployment crisis was there, including the new higher education minister, Hlengiwe Mkhize. She told dinner guests that what had made the deepest impression on her during the discussions was the importance of partnerships. "We’ve taken too long but today I’ve come out with a sense of hope that SA is alive with possibility if we focus on partnerships between government, the private sector and civil society," she said.
Picking up on her theme, Ramaphosa said it was in SA’s DNA for people from opposing sides to be able to work together to solve intractable problems — and the country would solve the problem of youth unemployment, too. Unfortunately, he chose the example of the national minimum wage negotiations, which he chaired for more than a year, as an example of "partnerships that work". Business and labour managed to come together to agree on a national minimum wage that would lift the earnings of 6-million people, he beamed.
The labour economist sitting next to me dropped his head into his hands. Is it really possible that Ramaphosa doesn’t realise that a minimum wage that raises entry-level wages across large parts of the economy will worsen youth unemployment? In fact, it is hard to think of an intervention that is more likely to damage young, unskilled people’s prospects of finding their first job than the introduction of a national minimum wage.
One of the root causes of SA’s high youth unemployment rate is the fact that employers consider entry-level wages to be too high relative to the risk of hiring inexperienced workers.
This was the rationale for introducing the youth wage subsidy — formally known as the employment tax incentive — in January 2014. It incentivises employers to hire young people who will earn less than R6,000 a month by granting the firm a generous tax credit for the first two years of their employment. The incentive was a rip-roaring success, benefiting 645,973 individuals, roughly 17% of all eligible 18-to 29-year-olds, in its first two years.
Since the youth wage subsidy has proved that employers will respond to lower entry-level wages by hiring more, what does this suggest will happen when the national minimum wage is introduced, raising entry-level wages? Worse, it is likely to kick in during 2019, assuming the usual regulatory delays, at much the same time as the youth wage subsidy is set to expire.
It is doubtful whether SA’s policy makers, Ramaphosa included, realise the cul de sac they have backed themselves into on youth unemployment. Yet this could have been avoided had the wage discussions not been divorced from SA’s broader economic policy thrust, which seeks to incentivise job creation, increase labour intensity and lower entry-level wages. The minimum wage will undermine all three imperatives.
The panel Ramaphosa convened to advise the National Economic Development and Labour Council on the level at which to pitch the wage was supposed to resolve these contradictions. But it was skewed towards poverty and development experts and given little time to deliberate. In the end, it provided a fig-leaf of technical validation.
If Ramaphosa is smart, he will ensure that when it is set up, the national minimum wage exemptions process is extremely efficient and prioritises the needs of small businesses. It’s either that or watch the dial on youth unemployment inch ever deeper into the red.
• Bisseker is Financial Mail assistant editor.
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