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Wage Subsidy in the DRC: A CGE Analysis

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  • Jean Luc Erero, Daniel Djauhari Pambudi and Lumengo Bonga Bonga

Abstract

This paper analyses wage subsidies on lower-skilled formal workers in the Democratic Republic of Congo (DRC). A multi-sectoral empirically-calibrated general equilibrium model capturing the economy-wide transactions between the formal and informal sectors is used to analyse one policy simulation in the DRC. The short and long run simulation in which the government provides wage subsidy to lower-skilled workers indicates that the government is able to significantly improve the deficiencies of the formal and informal households’ real disposable incomes. There is a general increase across formal and informal sectors in real household disposable incomes due to wage subsidy. The simulation results show that subsidy allocation narrowed the income gap between high and low income households, and between formal and informal sectors as well. The result seems somewhat insightful for wage policy simulation as the wage subsidy that targets lower-skilled formal workers increases real GDP from the expenditure side by 1.19% and 3.19% in the short and long run, respectively, from the baseline economy.

Suggested Citation

  • Jean Luc Erero, Daniel Djauhari Pambudi and Lumengo Bonga Bonga, 2013. "Wage Subsidy in the DRC: A CGE Analysis," Working Papers 372, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:372
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    File URL: http://www.econrsa.org/node/756
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    Keywords

    wage subsidy; informal sector; CGE model; Democratic Republic of Congo;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy

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