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Prospective Analysis of a Wage Subsidy for Cape Town Youth

  • James A. Levinsohn
  • Todd Pugatch

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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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
Note: LS
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