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Estimating the short run effects of South Africa's Employment Tax Incentive on youth employment probabilities using a difference-in-differences approach

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  • Vimal Ranchhod

    (SALDRU, School of Economics, University of Cape Town)

  • Arden Finn

    (SALDRU, School of Economics, University of Cape Town)

Abstract

What effect did the introduction of the Employment Tax Incentive (ETI) have on youth employment probabilities in South Africa in the short run? The ETI came into effect on the 1st of January 2014. Its purpose is to stimulate youth employment levels and ease the challenges that many youth experience in finding their first jobs. Under the ETI, firms that employ youth are eligible to claim a deduction from their taxes due, for the portion of their wage bill that is paid to certain groups of youth employees. We utilize nationally representative Quarterly Labour Force Survey (QLFS) data for the period from January 2011 to June 2014, and implement a difference-in-differences methodology at the individual level to identify the effects of the ETI on youth employment probabilities. Our primary finding is that the ETI did not have any statistically significant and positive effects on youth employment probabilities. The point estimate from our preferred regression is -0.005 and the 95% confidence interval is from -0.017 to 0.006. We thus obtain a fairly precisely estimated 'zero effect'. We also find no evidence that the ETI has resulted in an increase in the level of churning in the labour market for youth. What our results imply is that any decrease in tax revenues that arise from the ETI are effectively accruing to firms which, collectively, would have employed most of these youth even in the absence of the ETI. We conclude with a discussion of some of the policy implications of our findings.

Suggested Citation

  • Vimal Ranchhod & Arden Finn, 2014. "Estimating the short run effects of South Africa's Employment Tax Incentive on youth employment probabilities using a difference-in-differences approach," SALDRU Working Papers 134, Southern Africa Labour and Development Research Unit, University of Cape Town.
  • Handle: RePEc:ldr:wpaper:134
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    References listed on IDEAS

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    1. Charles Meth, 2011. "Employer of Last Resort? South Africa’s Expanded Public Works Programme (EPWP)," SALDRU Working Papers 58, Southern Africa Labour and Development Research Unit, University of Cape Town.
    2. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-793, September.
    3. James Levinsohn & Neil Rankin & Gareth Roberts & Volker Schöer, 2014. "Wage subsidies and youth employment in South Africa: Evidence from a randomised control trial," Working Papers 02/2014, Stellenbosch University, Department of Economics.
    4. Burns, Justine & Edwards, Lawrence & Pauw, Karl, 2010. "Wage subsidies to combat unemployment and poverty," IFPRI discussion papers 969, International Food Policy Research Institute (IFPRI).
    5. Betcherman, Gordon & Olivas, Karina & Dar, Amit, 2004. "Impacts of active labor market programs : new evidence from evaluations with particular attention to developing and transition countries," Social Protection and Labor Policy and Technical Notes 29142, The World Bank.
    6. Justine Burns & Lawrence Edwards & Karl Pauw, 2010. "Wage Subsidies to Combat Unemployment and Poverty: Assessing South Africa’s Options," SALDRU Working Papers 45, Southern Africa Labour and Development Research Unit, University of Cape Town.
    7. Betcherman, Gordon & Godfrey, Martin & Puerto, Susana & Rother, Friederike & Stavreska, Antoneta, 2007. "A review of interventions to support young workers : findings of the youth employment inventory," Social Protection and Labor Policy and Technical Notes 41412, The World Bank.
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    Cited by:

    1. Amina Ebrahim & Murray Leibbrandt & Vimal Ranchhod, 2017. "The effects of the Employment Tax Incentive on South African employment," WIDER Working Paper Series 005, World Institute for Development Economic Research (UNU-WIDER).
    2. Dieter von Fintel, 2017. "Institutional wage-setting, labour demand and labour supply: Causal estimates from a South African pseudo-panel," Development Southern Africa, Taylor & Francis Journals, vol. 34(1), pages 1-16, January.
    3. Haroon Bhorat & Tara Caetano & Benjamin Jourdan & Ravi Kanbur & Christopher Rooney & Benjamin Stanwix & Ingrid Woolard, 2016. "Investigating the Feasibility of a National Minimum Wage for South Africa," Working Papers 201601, University of Cape Town, Development Policy Research Unit.
    4. Arden Finn & Murray Leibbrandt & Vimal Ranchhod, 2016. "Patterns of persistence: Intergenerational mobility and education in South Africa," SALDRU Working Papers 175, Southern Africa Labour and Development Research Unit, University of Cape Town.

    More about this item

    Keywords

    Youth; Unemployment; South Africa; Employment Tax Incentive;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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