Wage subsidies may boost hiring

2011-02-13 12:06

Johannesburg - Wage subsidies, referred to by President Jacob Zuma in his 2010 State of the Nation address, have helped countries like Italy, Poland and the Czech Republic to reduce unemployment by up to 15%.

Subsidy programmes that target special groups of workers – like young people or women – have apparently been more successful. In Ireland and the Czech Republic hiring was up between 12% and 15.6%.

Italy’s programme had two important features which, according to economists, characterise an effective wage-subsidy programme. Apart from being targeted at specific groups, they ensured that administrative costs did not dissuade companies from participating.

Italy introduced its wage subsidies in the 1980s to prevent joblessness among young people. Italian researchers found that these subsidies, which lasted for longer than a decade, had an enduring positive effect on the employment of young people.

Despite expectations, in last week's State of the Nation address Zuma said nothing about similar wage subsidies for South Africa’s young people.

Until the national budget is announced on February 23, observers can only speculate how the R9bn that government will set aside for job creation over the next three years will be spent, said Sandra Burmeister, chief executive of the Landelahni recruitment agency.

Sake24 understands that a programme such as this will in fact be announced during the budget.

Programmes in Australia, Belgium, Ireland and the Netherlands have shown these types of dead-weight losses.
For every 100 subsidised jobs that programmes added, only 10 new jobs were added to the economy, as shown by information from the Labour Policy Committee of the European Union.

A successful wage-subsidy programme would also ensure that the subsidy covered the true cost of appointing and training a new worker.

According to Burmeister this cost is often much more than an employee's mere salary.

Providing in-service training, he said, could be a big burden for companies. Young workers might learn the theory at school or in their university training, but that did not mean that they had the necessary skills to perform a specific function in a company.

The Southern Africa Labour and Development Research Unit (Saldru) attached to the University of Cape Town said that one of the problems with apprenticeships in South Africa was the administrative burden accompanying them.

Subsidy programmes in the US during the 1970s were also unsuccessful because subsidies were too small for companies to derive real benefit from them.

Subsidies that offer attractive incentives could cost governments a great deal, said Saldru.

- Sake24

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  • Freemarketman - 2011-02-13 20:00

    This is called an economic fallacy...

  • Jimi - 2011-02-14 13:39

    Nice idea, but how will such subsidies be financed? Even more taxes I daresay...

  • oupa - 2011-02-15 14:00

    do we really have capacity to subsidise employment? Why we cant build shools and educate unskilled and semiskilled? This is just the means of transforming people into votes. Period.....

  • BRIAN - 2011-02-16 12:09

    The government will spend the 9Billion on consultants. That means anybody with minimum education and an ANC membership.

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