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Love Is Blind - the Youth Wage Subsidy and the South African Media

23 February 2015   (0 Comments)
Posted by: Author: Doron Isaacs
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Author: Doron Isaacs (Equal Education)

Some media houses are cheerleading for the youth wage subsidy, despite the available evidence strongly suggesting that it is already a R2bn waste of public money.

Moneyweb claimed that it was "providing relief for young job seekers". Business Day's report downplayed the negative evidence. Stephen Grootes of Eyewitness News called for it to be "expanded". And The Times said its success "deserved to be shouted from the rooftops".

President Zuma echoed this optimism in his State of the Nation Address. Having ignored the preceding violence, welcomed Chad le Clos and Portia Modise, noted that the youth was "our future", and congratulated "in abstentia", Miss World, Rolene Strauss, the President got down to business and trumpeted the success of his government's Employment Tax Incentive (ETI) Act, the legislative vehicle of the youth wage subsidy. It was one of his speech's very first items:

"Our investment in youth employment is also paying off. The Employment Tax Incentive which was introduced last year directed mainly at the youth, is progressing very well.

Two billion rand has been claimed to date by some twenty nine thousand employers, who have claimed for at least two hundred and seventy thousand young people."

City Press editor Ferial Haffajee tweeted: "Best news so far 270 000 youth getting jobs on youth wage subsidy. This thing's working. #Sona2015."

Interestingly, most respondents to her tweet were incredulous, and they had good reason to be.

Research by Vimal Ranchhod and Arden Finn of the Southern Africa Labour and Development Research Unit (SALDRU) at the University of Cape Town shows that the policy, which came into effect on 1 January 2014, "did not have any statistically significant and positive effects on youth employment probabilities".

They conclude: "In the first six months since the introduction of the ETI, we find no evidence that the ETI had any substantial, positive and statistically significant effect on aggregate youth employment probabilities."

Their research, they say, establishes a "fairly precisely estimated 'zero effect'."

Haffajee quickly corrected course by retweeting Pippa Green, who linked to an op-ed by Ranchhod. In it Ranchhod explains that claims do not equal jobs. "It is possible that there was a large number of claims," he writes, "but simultaneously few new jobs were created that can be directly attributed to the incentive."

How is this possible? Because claiming the subsidy does not require the creation of a new position. A business may claim the subsidy, in the form of a tax deduction, for any new hire it makes of someone under 30 earning R6,000 a month or less. As Ranchhod explains, most of these may well be for employment that would have existed anyway:

"There are new employees in existing positions (or turnover), new employees in new positions that would have been created even in the absence of the incentive (or natural job creation), and new employees in new positions that have been created only because of the introduction of the incentive. While all three groups are eligible for tax relief, and could thus be claimants in the Treasury's number, only the third group will change the overall chances of youth finding employment."

When political and business interests are in consensus, is editorial independence unnecessary?

In their original research paper Ranchhod and Finn gave a simple example to illustrate why the subsidy may be getting claimed without creating new jobs.

"[C]onsider an eligible firm that planned on hiring 50 youth workers at R4000 per worker per month, without the ETI. With the introduction of the ETI, the net cost to this firm of these 50 employees will drop from R200 000 to R150 000 per month, since each worker will qualify [the firm] for tax relief of R1000 per month. The firm will thus receive aggregate tax relief of R50 000, even though there will be no impact on youth employment levels. This firm will then decide on whether the 51st youth employee, i.e. the marginal employee, will add enough value to the firm to warrant their net wage."

It is important to understand that the tax relief is to the business, not the individual. This fact, and the above example, illustrate why the authors of this cautious and measured paper were willing to suggest that "this represents a pure transfer from taxpayers to a subset of firms who are not doing anything differently, " which is to say that "any decrease in tax revenues that arise from the ETI are effectively accruing to firms which, collectively, would have employed most of these youth even in the absence of the ETI."

The figure of 270,000 youth, which President Zuma cited, was first given by Treasury spokesperson Jabulani Sikhakhane in January. Ranchhod has said that Sikhakhane did "not claim the incentive created 270,000 new jobs, although this has been misinterpreted in several articles in the media".

Indeed, Business Day's report was headed "Tax incentive 'put 270,000 in jobs'". Not just a misinterpretation, but a misquote?

The report twice recites Treasury's rebuttals before, after 275 words, finally noting the negative findings of the research done at UCT. But after just 67 words it pivots away. In the end, the damning conclusions, which nobody has disputed, of the only independent, academic investigation, are sandwiched in as 11% of the article. It, like its headline, may leave the reader believing the opposite of reality.

The Times can at least be credited with no pretence at accuracy or balance. Its "from the rooftops" editorial argued that "the work experience gained by hundreds of thousands of young job-seekers employed because of the incentive scheme is priceless." It cited Business Day - owned by the same Times Media Group - as its only source, with the research done at UCT not even warranting a mention.

With the notable exceptions of the Independent OnlineGroundUpAfricaCheck, and an important City Press report by Dewald van Rensburg, our media has engaged in advocacy, not journalism. What would induce mediocrity of this sort from publications that see themselves in the vanguard of media freedom?

The legislation was lobbied for aggressively by the DA and legislated into law by the ANC government. It has the support of business, particularly labour brokers who are amongst its prime beneficiaries.

When political and business interests are in consensus, is editorial independence unnecessary?

This article first appeared on allafrica.com.


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