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Evaluating The General Equilibrium Effects Of A Wage Subsidy Scheme For South Africa

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  • Kalie Pauw
  • Lawrence Edwards

Abstract

Unemployment among semi‐ and unskilled labour has reached severe proportions (over 50%) and threatens the political and economic stability of the South African economy. In this paper a computable general equilibrium (CGE) model of the South African economy is used to assess the effectiveness of a wage subsidy in raising employment of semi‐ and unskilled workers. We find that employment of semi‐ and unskilled workers can be raised quite significantly. Further, the wage subsidy schemes compares favourably with alternative welfare grant schemes in terms of employment growth. However, the results are sensitive to the targeting of sectors and the substitutability between labour of different skill levels.

Suggested Citation

  • Kalie Pauw & Lawrence Edwards, 2006. "Evaluating The General Equilibrium Effects Of A Wage Subsidy Scheme For South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 74(3), pages 442-462, September.
    • Handle: RePEc:bla:sajeco:v:74:y:2006:i:3:p:442-462
    DOI: 10.1111/j.1813-6982.2006.00082.x
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    References listed on IDEAS

    as
    1. McDaniel, Christine A. & Balistreri, Edward J., 2002. "A Discussion on Armington Trade Substitution Elasticities," Working Papers 15856, United States International Trade Commission, Office of Economics.
    2. repec:rza:wpaper:21 is not listed on IDEAS
    3. Thurlow, James & van Seventer, Dirk, 2002. "A standard computable general equilibrium model for South Africa," TMD discussion papers 100, International Food Policy Research Institute (IFPRI).
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    Cited by:

    1. 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.
    2. Rusmawati Said & Kamarul Hidayah Abdul Hamid & Nursyazwani Mazlan, 2020. "How Does Immigration Affect Wages and the Unemployment Rate in Malaysia? A Computable General Equilibrium (CGE) Approach," Asian Social Science, Canadian Center of Science and Education, vol. 16(11), pages 100-100, November.
    3. Rob Davies & James Thurlow, 2010. "Formal–Informal Economy Linkages And Unemployment In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 78(4), pages 437-459, December.
    4. Burns, Justine & Edwards, Lawrence & Pauw, Karl, 2010. "Wage subsidies to combat unemployment and poverty: Assessing South Africa's options," IFPRI discussion papers 969, International Food Policy Research Institute (IFPRI).
    5. 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.
    6. 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.
    7. 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.
    8. Ali Enami & Sucharita Ghosh, 2024. "Subsidized wages, small businesses, and exports: Evidence from the paycheck protection program," Review of International Economics, Wiley Blackwell, vol. 32(4), pages 1671-1697, September.
    9. Louise Roos, 2013. "Construction of a database for a dynamic CGE model for South Africa," Centre of Policy Studies/IMPACT Centre Working Papers g-234, Victoria University, Centre of Policy Studies/IMPACT Centre.

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    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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