The jobless young: business' role in tackling youth unemployment

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A Statistic South Africa report also informed that the unemployment rate among the same age group had increased from 32.7% in 2008 to 36.1% in 2014. The government's response has been to invest in youth subsidies and between 1 January, 2014, and February 2015, it has invested over R2 billion in youth subsidies. With such high youth unemployment rates facing a developing economy like South Africa's it's important for businesses to understand the economic impacts that youth unemployment presents and role that they can play in addressing these effects.

The social and economic impact

New graduates lacking work experience often find themselves trapped in a vicious cycle. They lack the experience needed to fill a job opening, which prevents them from being employed. As such, their job-searching period becomes considerably longer than for experienced workers, which leads to gaps in employment history, loss of skills and productivity, and future work prospects are harmed. Young people struggling to find permanent jobs are bound to accept temporary positions, and these types of positions are not always considered 'real' work experience by employers and having these experiences listed on a CV does not necessarily ease the process of finding work. Moreover, temporary jobs are less protected, often pay less and do not offer job-related training and social benefits. As a result, unemployed young people face the worst possible career opportunities.

High youth unemployment has a negative impact on economic growth and productivity that can't be ignored. There is a risk of loss of talent and skills, since a great number of university graduates are unable to find a job and put their knowledge and capabilities into producing innovation and contributing to economic growth. Furthermore, having a large share of the young workforce unemployed, not only leads to reduced productivity and gross domestic product (GDP), it also increases the economic costs for the country, as there is a need for more money to be paid out on social grants and less money coming in from taxes.

The responsibility of business

Employers have a fundamental contribution to make in tackling youth unemployment, as they provide the job opportunities that enable young people to enter the labour market while also engaging with young people in other ways to help them prepare for work. Understanding the role that businesses have to play in boosting the employment of young work seekers, the South African Government launched the Employment Tax Incentive (ETI) Act in January 2014.

Commonly known as the youth wage subsidy, the act allows businesses to claim back some tax for employing young workers that adhere to certain requirements. The legislation encourages employers to hire young people by reducing the amount of PAYE payable to SARS, thereby reducing the cost of employment to the employer while leaving the company's earnings unaffected.

Employers that stand to benefit from the programme must be registered for PAYE and cannot come from the national, provincial or local sphere of government. Eligible companies can also not be a public entity listed in the Schedule Two or Three of the Public Finance Management Act.

An employee will qualify if he is between the ages of 18 and 29 and has a valid SA ID or an asylum seeker permit. The employee has to have been employed on or after 1 October, 2013, and must earn at least R2000 per month, and no more than R6000 per month. An employee will not qualify for the programme if he is related to the employer or if the employee is a domestic worker.

The incentive scheme is currently scheduled to end on 31 December, 2016, but its effectiveness will be reviewed to determine whether or not the programme can continue into the future.