Aspects of policy and the Youth Wage Subsidy 3

Following the Budget Speech last week there has been a lot of comments written on what it means for the consumer and what it says about policy in South Africa. Overall the reaction has been positive. Minister Gordhan had limited room to manoeuvre and signalled commitment to the NDP throughout. The top-3 issues listed in the NDP are unemployment, the quality of education and the state’s capacity to deliver public goods and services. Minister Gordhan made proposals regarding all of these.

In the week the followed the OECD published an country report card for South Africa with many overlapping issues. The report emphasises the challenge of extreme income inequality. Constraints to addressing this include limited administrative capacity, specifically at sub-national level as well as corruption. The report is also particularly critical of the education system:

“Education is a critical problem,” it says. “Skill mismatches represent one aspect of the persistently high unemployment rates, especially for youth: the education system is not producing the skills needed in the labour market.”

In a second article on the report, (the always excellent) Felicity Duncan writes about the challenges of fixing the labour market.

…the OECD made three primary recommendations: changing the rules that require the within-sector extension of wage agreements; creating special measures to help fight youth unemployment through subsidies and age-differentiated wages; and keeping some flexibility when revising laws around temporary employment.

The initiatives to reduce youth unemployment have been in the news for a while now, but the debate has produced more heat than light. Cosatu has been opposed to a Youth Wage Subsidy fearing that it will lead to the displacement of older workers. In the Budget Speech the Minister proposed tax incentives for youth employment.

Today the academics weighed in with the results of a pilot study of a youth wage subsidy scheme. Prof Neil Rankin ran an experiment:

4,000 young unemployed people from Johannesburg, Durban and Polokwane were chosen randomly. Half the group was given employment vouchers to cover 50% of their wages for six months, while the other half was not.

Interviewed after a year, job seekers in the first group showed a 25%-33% higher inclination to stay in a job. Interviewed again after two years — in November last year — a higher proportion of those who were given vouchers were still in employment. Neil Rankin, formerly the director of the research umbrella, said the fact that people who got jobs stayed in the jobs indicated that the voucher had the intended effect.

Read the full Business Day story here. To my mind this is exactly what the policy discourse needs in South Africa. We know the challenges and the NDP puts forward a plan, but we need more evidence based policy interventions. Development microeconomics has seen a surge of Randomised Control Trail (RCT) work in the past few years and it has added to our understanding of key issues. RCT’s are difficult to do, time-consuming and expensive but can end up yielding some interesting answers to start with the implementation of policy.


  1. Although the interesting question is: how much does this RCT REALLY tell us about the policy question we are interested in? Probably a lot less than the Business Day article seems to imply.

    • I know that there are those that love RCT and how it deals with the problems of identification in the regression models. Then there are those that say now we only know what happened to these specific 4000 job seekers under their specific circumstances. In other words, that it is not possible to generalise. I suspect the newspaper article will generalise more easily. Whether one is for or against RCTs, I am looking forward to having a look at the proper paper on this.

  2. Pingback: The best of 2013 « Skool vir Ekonomie

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