Abstract:
A quarter of the labour force in South Africa is currently unemployed with the majority of the
unemployed being unskilled youth. One of the major causes seems to be the commanding power of
trades union resulting in a high minimum wage for unskilled workers, which results in a reduction
in the demand for unskilled labour. To reduce the current unemployment rate in South Africa,
policy decisions should be focused on youth employment with emphasis on skills development.
Policy should also stimulate growth of small, medium and micro enterprises in order to stimulate
job creation. A literature review indicates that current tax incentives in South Africa do not
incentivise employers to hire unskilled youth labour, and are not applied on a wide enough scale
to significantly impact the overall unemployment statistics. The proposed youth wage subsidy will
increase the demand for unskilled labour by reducing the cost of labour. However, to have the
desired impact, the participation rate must be high. The proposed subsidy was analysed against
the successes and failures of subsidies implemented in the USA. It was found that many of the
flaws identified in the USA have been avoided. Based on the above, the recommendation is that
the proposed youth wage subsidy is plausible in a South African context and should be
implemented. The main concern is that newly employed youth would replace workers who do not
meet the qualifications of the subsidy. This would have to be taken into account by policy makers.
