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Wage Subsidy and Labour Market Flexibility in South Africa

  • Delfin Go
  • Marna Kearney
  • Vijdan Korman
  • Sherman Robinson
  • Karen Thierfelder

We use a general equilibrium model to analyse the employment effects and fiscal cost of a wage subsidy in South Africa. We capture the structural characteristics of the labour market with several labour categories and substitution possibilities, linking the economy-wide results to a micro-simulation model with occupational choice probabilities to investigate the poverty and distributional consequences. The employment impact depends greatly on the elasticities of substitution of factors of production, being very minimal if unskilled and skilled labour are complements in production. The impact is improved by supporting policies, but the gains remain modest if the labour market is rigid.

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Article provided by Taylor & Francis Journals in its journal Journal of Development Studies.

Volume (Year): 46 (2010)
Issue (Month): 9 ()
Pages: 1481-1502

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Handle: RePEc:taf:jdevst:v:46:y:2010:i:9:p:1481-1502
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  1. 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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  7. Go, Delfin S. & Kearney, Marna & Robinson, Sherman & Thierfelder, Karen, 2005. "An Analysis of South Africa's Value Added Tax," Policy Research Working Paper Series 3671, The World Bank.
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  11. Löfgren, Hans & Harris, Rebecca Lee & Robinson, Sherman, 2001. "A standard computable general equilibrium (CGE) model in GAMS," TMD discussion papers 75, International Food Policy Research Institute (IFPRI).
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  15. Morné Oosthuizen & Haroon Bhorat, 2005. "The Post-Apartheid South African Labour Market," Working Papers 05093, University of Cape Town, Development Policy Research Unit.
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