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Prospective Analysis of a Wage Subsidy for Cape Town Youth

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  • James A. Levinsohn
  • Todd Pugatch

Abstract

Recognizing that a credible estimate of a wage subsidy's impact requires a model of the labor market that itself generates high unemployment in equilibrium, we estimate a structural search model that incorporates both observed heterogeneity and measurement error in wages. Using the model to examine the impact of a wage subsidy, we find that a R1000/month wage subsidy paid to employers leads to an increase of R660 in mean accepted wages and a decrease of 15 percentage points in the share of youth experiencing long-term unemployment.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17248.

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Date of creation: Jul 2011
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Handle: RePEc:nbr:nberwo:17248

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  1. Christensen, Bent Jesper & Kiefer, Nicholas M., 1991. "The Exact Likelihood Function for an Empirical Job Search Model," Econometric Theory, Cambridge University Press, vol. 7(04), pages 464-486, December.
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  3. David Lam & Murray Leibbrandt & Cecil Mlatsheni, 2008. "Education and Youth Unemployment in South Africa," SALDRU Working Papers 22, Southern Africa Labour and Development Research Unit, University of Cape Town.
  4. John Bound & Alan B. Krueger, 1989. "The Extent of Measurement Error In Longitudinal Earnings Data: Do Two Wrongs Make A Right?," NBER Working Papers 2885, National Bureau of Economic Research, Inc.
  5. Abhijit Banerjee & Sebastian Galiani & Jim Levinsohn & Zoë McLaren & Ingrid Woolard, 2007. "Why Has Unemployment Risen in the New South Africa," NBER Working Papers 13167, National Bureau of Economic Research, Inc.
  6. Taryn Dinkelman & Vimal Ranchhod, 2010. "Evidence on the impact of minimum wage laws in an informal sector: Domestic workers in South Africa," SALDRU Working Papers 44, Southern Africa Labour and Development Research Unit, University of Cape Town.
  7. Go, Delfin S. & Kearney, Marna & Korman, Vijdan & Robinson, Sherman & Thierfelder, Karen, 2009. "Wage subsidy and labor market flexibility in south Africa," Policy Research Working Paper Series 4871, The World Bank.
  8. Kalie Pauw & Lawrence Edwards, 2005. "Evaluating the general equilibrium effects of a wage subsidy scheme for South Africa," Working Papers 21, Economic Research Southern Africa.
  9. Flinn, C. & Heckman, J., 1982. "New methods for analyzing structural models of labor force dynamics," Journal of Econometrics, Elsevier, vol. 18(1), pages 115-168, January.
  10. Tom Hertz, 2005. "The Effect of Minimum Wages on the Employment and Earnings of South Africa's Domestic Service Workers," Upjohn Working Papers and Journal Articles 05-120, W.E. Upjohn Institute for Employment Research.
  11. Nicoli Nattrass & Richard Walker, 2005. "Unemployment And Reservation Wages In Working-Class Cape Town," South African Journal of Economics, Economic Society of South Africa, vol. 73(3), pages 498-509, 09.
  12. Burns, Justine & Edwards, Lawrence & Pauw, Karl, 2010. "Wage subsidies to combat unemployment and poverty," IFPRI discussion papers 969, International Food Policy Research Institute (IFPRI).
  13. Pugatch, Todd, 2012. "Bumpy Rides: School to Work Transitions in South Africa," IZA Discussion Papers 6305, Institute for the Study of Labor (IZA).
  14. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
  15. Volker Schöer & Murray Leibbrandt, 2006. "Determinants Of Job Search Strategies: Evidence From The Khayelitsha/Mitchell'S Plain Survey," South African Journal of Economics, Economic Society of South Africa, vol. 74(4), pages 702-724, December.
  16. Jeremy R. Magruder, 2012. "High Unemployment Yet Few Small Firms: The Role of Centralized Bargaining in South Africa," American Economic Journal: Applied Economics, American Economic Association, vol. 4(3), pages 138-66, July.
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Cited by:
  1. Pugatch, Todd, 2012. "Bumpy Rides: School to Work Transitions in South Africa," IZA Discussion Papers 6305, Institute for the Study of Labor (IZA).

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