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Revisiting wage subsidies: How pro-poor is a South African wage subsidy likely to be?

Author

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  • Justine Burns
  • Lawrence Edwards
  • Karl Pauw

Abstract

Wage subsidies have been used in both developed and developing countries to raise employment. After a decade of deliberation, the South African Government recently announced the introduction of a wage subsidy scheme. Given the intrinsic link between unemployment and poverty in South Africa, the belief is that a wage subsidy programme sufficient in scope will also make inroads into poverty. However, the way in which jobs are distributed among poor and non-poor jobseekers is crucial. Our general equilibrium microsimulation model confirms the expectation that a higher wage elasticity of labour demand is associated with larger reductions in poverty. We also find that a greater proportion of new jobs accrue to poor jobseekers when the elasticity is high. While youth-targeting does not improve the poverty-reducing effect of the policy, sectors such as textiles, accommodation, and construction services with their pro-poor employment profiles are good candidates for targeting.

Suggested Citation

  • Justine Burns & Lawrence Edwards & Karl Pauw, 2013. "Revisiting wage subsidies: How pro-poor is a South African wage subsidy likely to be?," Development Southern Africa, Taylor & Francis Journals, vol. 30(2), pages 186-210, June.
  • Handle: RePEc:taf:deveza:v:30:y:2013:i:2:p:186-210
    DOI: 10.1080/0376835X.2013.801197
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    Cited by:

    1. Seán M. Muller, 2021. "Evidence for a YETI? A Cautionary Tale from South Africa's Youth Employment Tax Incentive," Development and Change, International Institute of Social Studies, vol. 52(6), pages 1301-1342, November.
    2. Levinsohn, James & Pugatch, Todd, 2014. "Prospective analysis of a wage subsidy for Cape Town youth," Journal of Development Economics, Elsevier, vol. 108(C), pages 169-183.
    3. Jacopo Zotti & Rosita Pretaroli & Francesca Severini & Claudio Socci & Giancarlo Infantino, 2020. "Employment incentives and the disaggregated impact on the economy. The Italian case," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 37(3), pages 993-1032, October.

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