What role has the Employment Tax Incentive played?
South Africa has some of the highest rates of joblessness in the world and youth unemployment is particularly severe. Roughly two in five young South Africans who want work cannot find it, according to labour force surveys.
The South African government has introduced numerous policies to help young people gain employment and is currently deciding whether or not to extend a tax incentive designed to encourage firms to hire young workers. At stake is whether the policy, called the Employment Tax Incentive (ETI), has successfully boosted youth employment.
UNU-WIDER, the South African National Treasury, and the South African Revenue Service have worked together to make individual and corporate tax forms available to academic researchers. The data-sharing represents a true commitment to a transparent evaluation process according to rigorous academic standards.
Video of Itumeleng Makgetla – Encouraging Jobs in South Africa Watch this video to learn more about Itumeleng Makgetla's findings on South Africa's Employment Tax Incentive.
Evaluation is an important means of helping policymakers to take the next steps. In the case of the ETI, evidence of effectiveness among smaller firms can be used to assess the incentive's price tag and decide whether to continue it after 2017, when it is slated to end.
How does the Employment Tax Incentive function?
The policy essentially lowers the relative cost of low-skilled youth labour, incentivizing firms to hire young workers.
The incentive works by reducing the amount of payroll tax that an employer paid per eligible employee. Eligible workers are aged between 18 and 29, earn between ZAR2,000 to ZAR6,000 per month, work in the private sector and were hired after 1 October 2013.
The government's expectations were that the incentive would add 178,000 jobs to the economy.
The policy essentially lowers the relative cost of low-skilled youth labour, incentivizing firms to hire young workers. Over time, lower labour costs should encourage expansion and greater employment overall, though evidence of this latter effect may take longer to materialize than that of youth hiring patterns.
In total, around 30,700 firms claimed the incentive for almost 300,000 individuals over fourteen months, from its introduction in January 2014 to February 2015. The total claimed for eligible workers was about R1.5 billion (excluding claims that failed eligibility requirements).