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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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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:17248

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  1. Christensen, Bent Jesper & Kiefer, Nicholas M, 1994. "Measurement Error in the Prototypal Job-Search Model," Journal of Labor Economics, University of Chicago Press, vol. 12(4), pages 618-39, October.
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  6. 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.
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  9. Amar Hamoudi & Duncan Thomas, 2014. "Endogenous Co-residence and Program Incidence: South Africa’s Old Age Pension," NBER Working Papers 19929, National Bureau of Economic Research, Inc.
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  12. 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.
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  15. Wolpin, Kenneth I, 1987. "Estimating a Structural Search Model: The Transition from School to Work," Econometrica, Econometric Society, vol. 55(4), pages 801-17, July.
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  17. 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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  22. Christensen, B.J. & Kiefer, N.M., 1990. "The Exact Likelihood Function For An Empirical Job Search Model," Papers 9017, Tilburg - Center for Economic Research.
  23. Delfin Go & Marna Kearney & Vijdan Korman & Sherman Robinson & Karen Thierfelder, 2010. "Wage Subsidy and Labour Market Flexibility in South Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 46(9), pages 1481-1502.
  24. Lancaster, Tony & Chesher, Andrew, 1983. "An Econometric Analysis of Reservation Wages," Econometrica, Econometric Society, vol. 51(6), pages 1661-76, November.
  25. Edmonds, Eric V., 2006. "Child labor and schooling responses to anticipated income in South Africa," Journal of Development Economics, Elsevier, vol. 81(2), pages 386-414, December.
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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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