Prospective analysis of a wage subsidy for Cape Town youth Public Deposited

http://ir.library.oregonstate.edu/concern/articles/vd66w196n

This is an author's peer-reviewed final manuscript, as accepted by the publisher. The published article is copyrighted by Elsevier and can be found at:  http://www.journals.elsevier.com/journal-of-development-economics/.

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  • 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 R1,000/month wage subsidy paid to employers leads to an increase of R571 in mean accepted wages and a decrease of 12 percentage points in the share of youth experiencing long-term unemployment.
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  • Levinsohn, J., & Pugatch, T. (2014). Prospective analysis of a wage subsidy for Cape Town youth. Journal of Development Economics, 108, 169-183. doi:10.1016/j.jdeveco.2014.02.006
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