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Wage subsidies to combat unemployment and poverty

  • Burns, Justine
  • Edwards, Lawrence
  • Pauw, Karl

Wage or employment subsidies have been used in both developed and developing countries to raise employment levels. Various advisers to the South African government have endorsed wage subsidies as a policy measure to deal with this country�s massive unemployment problem. This paper takes stock of the international literature and conducts an economywide macro-micro analysis to obtain insights into wage subsidy design and implementation issues facing developing countries. It also investigates whether this policy measure is appropriate in dealing with South Africa�s particular sources of unemployment. We argue that although wage subsidies may be successful at creating jobs in South Africa, they should not be seen as the primary or dominant policy instrument for dealing with the broader unemployment problem. To enhance the effectiveness of wage subsidies, they should preferably be linked to structured workplace training, be targeted to industries where employment will be responsive to changes in labor costs, and be focused on the youth. In the long run, addressing unemployment in South Africa requires policies that improve economic growth and the economy�s employment absorption capacity, that raise skills of new labor market entrants, that reduce labor market rigidities, and that promote effective job search, especially among the youth.

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Paper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 969.

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Date of creation: 2010
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Handle: RePEc:fpr:ifprid:969
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  1. 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, 09.
  2. 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.
  3. Geeta Kingdon & John Knight, 2004. "Unemployment in South Africa: the nature of the beast," Labor and Demography 0409003, EconWPA.
  4. Kalie Pauw & Morné Oosthuizen & Carlene van der Westhuizen, 2006. "Graduate Unemployment in the Face of Skills Shortages: A Labour Market Paradox," Working Papers 06114, University of Cape Town, Development Policy Research Unit.
  5. Robert Pollin & Gerald Epstein & James Heintz & Léonce Ndikumana, 2006. "An Employment-targeted Economic Programme for South Africa," Country Study 1, International Policy Centre for Inclusive Growth.
  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.
  7. Daniela Casale & Colette Muller & Dorrit Posel, 2004. "'Two Million Net New Jobs': A Reconsideration Of The Rise In Employment In South Africa, 1995-2003," South African Journal of Economics, Economic Society of South Africa, vol. 72(5), pages 978-1002, December.
  8. repec:ctw:wpaper:9618 is not listed on IDEAS
  9. JW Fedderke & Martine Mariotti, 2002. "Changing Labour Market Conditions In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 70(5), pages 830-864, 06.
  10. Servaas van der Berg & Ronelle Burger & Rulof Burger & Megan Louw & Derek Yu, 2006. "Trends in Poverty and Inequality since the Political Transition," Working Papers 06104, University of Cape Town, Development Policy Research Unit.
  11. Lawrence Edwards & Alberto Behar, 2005. "Trade liberalisation and labour demand within South African manufacturing firms," Working Papers 06, Economic Research Southern Africa.
  12. Morné Oosthuizen, 2006. "The Post-Apartheid Labour Market: 1995-2004," Working Papers 06103, University of Cape Town, Development Policy Research Unit.
  13. Gary Burtless, 1985. "Are targeted wage subsidies harmful? Evidence from a wage voucher experiment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 39(1), pages 105-114, October.
  14. Nicola Branson, 2006. "The South African Labour Market 1995-2004: A Cohort Analysis," SALDRU Working Papers 7, Southern Africa Labour and Development Research Unit, University of Cape Town.
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