Tax incentive brings hope to dwindling job market

By Staff Writer
Nicolette Dirk, finance writer, Justmoney.co.za
 
The South African economy shed 118,397 jobs in February, marking the biggest monthly loss in almost three years. This is according to Adcorp Labour Economist, Loane Sharp, in the latest Adcorp Employment Index.
 
The biggest losses were recorded in permanent work, which lost 104,593 jobs, and temporary work, which lost 26,832 jobs.

Sharp said that from a sector perspective, the impact was diverse. Significant job losses were observed in mining (-60.5%), transport and logistics including communications (-21.7%) as well as wholesale and retail trade (-6.9%). All economic sectors shed jobs during the month.
 
All occupations shed jobs during the month, mostly among trades workers (-15.1%) and clerks and other service workers (-8.7%). The only sector to create employment was the informal sector with 13,028 jobs for the month.
 
Hope for the job market 
 
Despite the current figures, Sharp said he was optimistic about South Africa’s newly launched employment tax incentive and its ability to have a sustained positive impact in the labour market. He said the impact will be initially felt by the burgeoning low-skilled, low-paid youth, with the potential for a more widespread impact on other employment groups in years to come.
 
“The defining characteristic of the employment tax incentive is that it is the first policy measure that seeks to stimulate the demand for labour,” he said.
 
Sharp added that the employment tax incentive is defined by its strategic focus 
“ Firstly its emphasis on the creation of demand for jobs; its side-stepping forceful opposition from the Congress of South African Trade Unions (COSATU); its profit motive; its hypothesis of linkages between employment and wage costs; and its focus on the formal sector,” said Sharpe.
 
He added that for these reasons, the employment tax incentive represents a great leap forward in the government’s thinking about South Africa’s unemployment problem. It is targeted at the right group, namely unemployed youth between the ages of 18 and 29. It is the first governmental initiative to directly stimulate the demand for labour. 
 
Can this tax incentive solve the country’s employment problem?
 
Although the incentive will initially be limited to low-skilled, low-paid youth, the government has indicated that the success of the programme will determine whether it will be extended beyond its current 31 December 2015 deadline.
 
“It is difficult to imagine a better designed programme for South Africa’s unique conditions. Based on our own modelling of the sensitivity of employment to wage costs, it seems likely that the youth tax incentive will create 852,000 jobs over the coming decade, assuming only that the incentive remains in place beyond its current anticipated deadline of 31 December 2015,” said Sharpe.
 
But not everyone believes the new tax incentive is the right way to go for South Africa. 
Efficient Group economist, Dawie Roodt, said the wage subsidy may be a good way to get younger people into the job market but he did not believe it will have a huge impact on economic growth.
 
“To a degree I agree with Cosatu that this incentive could exclude older people who are seeking jobs. It won’t mean that older people will be fired, but an employer will now more likely hire someone younger, to get a tax incentive,” added Roodt.

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