Prospective analysis of a wage subsidy for Cape Town youth

James Levinsohn and Todd Pugatch

Journal of Development Economics, 2014, vol. 108, issue C, 169-183

Abstract: Persistently high youth unemployment is one of the most pressing problems in South Africa. We prospectively analyze an employer wage subsidy targeted at youth, a policy recently enacted by the South African government to address the issue. Recognizing that a credible estimate of the policy'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 simulate the policy, we find that a R1000/month wage subsidy paid to employers leads to an increase of R596 in mean accepted wages and a decrease of 12 percentage points in the share of youth experiencing long-term unemployment.

Keywords: Job search; Reservation wages; Labor supply; Youth unemployment; South Africa (search for similar items in EconPapers)
JEL-codes: J64 J68 O12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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Working Paper: Prospective Analysis of a Wage Subsidy for Cape Town Youth (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:108:y:2014:i:c:p:169-183

DOI: 10.1016/j.jdeveco.2014.02.006

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