By Isobel Frye
In 1802, the Royal Society of Arts in England offered a prize for the design of a machine to clean the chimneys of the large houses of the aristocracy. The society wanted to end the use of child chimney sweeps, the “peculiar disgrace of England” and an infamous feature of Charles Dickens’s poor England.
The winning machine was called a scandiscope. Because of it, “child sweeps” were outlawed in 1834. But this led to an unintended increase in household poverty and hunger.
Good intentions do not guarantee good outcomes, a principle well illustrated in the policy known colloquially as the South African Youth Wage Subsidy. In the mid-2000s, the government invited a team of eminent Harvard academics to work with local experts to solve the constraints binding economic growth and related problems, including unemployment. Youth unemployment was a particular concern.
A youth wage subsidy was mooted as one of a number of solutions. The expert panel’s advice was that the weave of the causes and effects of unemployment was so complex that the government should try a variety of small-scale pilots to solve diverse problems and, after studying the findings, construct a dynamic policy architecture.
This architecture would move people into the labour market, upskill where necessary, and crucially link labour market policy with a dynamic growth and re-industrialisation policy. Getting people into jobs was important, but first, you needed to create a demand for jobs.
However, it seems, for some reason, that the only part of this that the Treasury adopted was the Youth Wage Subsidy. Wage subsidies are an odd phenomenon because no one seems to like them much, but they appear to be fall-back plans.
Throwing money at a problem often appears to be the easiest solution, even when the evidence says it won’t work. An employer side wage subsidy is a solution if employers are cutting jobs or not employing people because they think that salaries outweigh productivity, and the state is willing to carry the difference for the sake of keeping jobs.
On the other hand, employee side subsidies can work, for instance, as work seeker grants if the cost of looking for a job is too high for the average person to afford.
Skills training schemes can also work with a job placement part if the sector is lacking particular skills. But you have to know what skills, if any, are in demand and why there is a mismatch between the supply and demand of jobs. In South Africa, we have just stopped creating jobs.
The youth wage subsidy, officially known as the Employment Tax Incentive, was adopted in 2014 for an initial two-year period. Its aim was to encourage firms to hire people under 29. The subsidy has been controversial from the start. This scheme differed a lot from the initial pilot, so there were many variables that hadn’t been sufficiently tested.
It wasn’t clear why there wasn’t broader experimentation as the panel had suggested. There was anger that the scheme had not been thoroughly costed. Cosatu referred to the scheme as a “social grant for Business”, which stung given that Treasury was refusing to consider a Basic Income Grant even then.
After the first two years, the scheme was extended for another two years, despite a lack of evaluation or any costings, and then, in 2019, it was extended for another 10 years, with a commitment to a scheme review only being done in 2024 – nine years after the initial introduction of the scheme.
And this is where the rub lay. Youth unemployment was growing, not decreasing, despite the introduction of the Youth Wage Subsidy. Unemployment among 15- to 24-year-olds in Q4 (fourth quarter) 2017 was 63.9%.
By Q4 2021, this had increased to a whopping 77%. And the evaluations that are emerging of the scheme find that the job numbers are not adding up and that many of the jobs that are being created would have been created anyway, even without giving the tax relief to companies, a phenomenon known as “dead weight” effect.
The empirical evidence doesn’t support extending the scheme for another 10 years. Perhaps the government feels that it is expected to deliver a solution, and this was a scheme that looks like that solution.
But if we believe that, then we stop the hard work of trying all the different variables and options that the expert panel suggested should be done, and still we sit with the rising unemployment crisis. Evidence suggests that we can create millions of jobs.
We can provide support to micro-entrepreneurs, and we must provide a universal basic income to give people the ability to produce and consume at a local level. But back in Dickensian England, the real solution was not the scandiscope.
It was the welfare state that ensured a fairer distribution of wealth 150 years later. The Youth Wage Subsidy is our scandiscope. Instead, we need to do the hard work. We need to change our failing macro-economic framework. We need to be testing and trying and finding real solutions. And we don’t have the luxury of time.
* Frye is the director of the Studies in Poverty and Inequality Institute.