26 November 2015
Equal Education is dismayed to see Minister of Economic Development, Ebrahim Patel, apparently misleading workers at the Cosatu Congress, by hailing the youth wage subsidy, officially known as the Employment Tax Incentive (ETI) “as being a mechanism that helped create 426 000 new jobs since its implementation.” [UPDATE: REFERENCES TO MINISTER PATEL IN THIS STATEMENT HAVE BEEN WITHDRAWN. THE IOL NEWS REPORT RELIED ON (LINKED ABOVE) WAS INCORRECT. AN APOLOGY HAS BEEN ISSUED. THE REST OF THE STATEMENT REMAINS VALID. SEE CLARIFICATORY STATEMENT HERE.]
A second study released by UCT researchers in August, undisputed by scholars, has confirmed an earlier study that “the ETI has not resulted in a statistically significant change in the probability of young people finding jobs, despite its cost of R2 billion over the first year of its existence [from 1 Jan 2014].”
An earlier study looked at the first six months of the youth wage subsidy, whereas the second one looks at the first year, yielding the same findings. The second study compares “three years of data from before the introduction of the ETI and one year of data coinciding with the first year of its implementation”.
“This finding”, the researchers (Vimal Ranchhod and Arden Finn) say, “has important policy implications, given that 270 000 jobs were subsidised at an average cost of approximately R7 400 each over the course of the year.”
Indeed, even supporters of the subsidy in the business community are starting to admit it is a R2bn per year sham: “As we take stock, however, there is reason to fear that some employers are profiting from the scheme by claiming the incentive for workers they would have employed in any case. In other words, they are benefitting from a taxpayer-funded tax break without necessarily creating new jobs.”
Patel’s reported claim goes further even than President Zuma’s in his February 2015 State of the Nation Address. Zuma noted that “R2 billion has been claimed to date by some 29 000 employers, who have claimed for at least 270 000 young people.” In other words, he did not claim that new jobs had been created, whereas Patel appears to.
If Minister Patel is in possession of data which has not been made available to researchers then he should immediately release it, but if not he should desist from unproven claims. [UPDATE: REFERENCES TO MINISTER PATEL IN THIS STATEMENT HAVE BEEN WITHDRAWN. THE IOL NEWS REPORT RELIED ON (LINKED ABOVE) WAS INCORRECT. AN APOLOGY HAS BEEN ISSUED. THE REST OF THE STATEMENT REMAINS VALID. SEE CLARIFICATORY STATEMENT HERE.]
In a previous statement, and detailed submissions to Treasury, Equal Education explained how the subsidy works, why it was likely to fail, and how it is that the subsidy gets claimed to the tune of R2bn per year without creating jobs.
Doron Isaacs, Equal Education Treasurer 082 850 2111