Revisiting wage subsidies: How pro-poor is a South African wage subsidy likely to be? |
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Authors: | Justine Burns Lawrence Edwards |
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Affiliation: | School of Economics, University of Cape Town , Private Bag X3, Rondebosch , 7701 , South Africa |
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Abstract: | Wage subsidies have been used in both developed and developing countries to raise employment. After a decade of deliberation, the South African Government recently announced the introduction of a wage subsidy scheme. Given the intrinsic link between unemployment and poverty in South Africa, the belief is that a wage subsidy programme sufficient in scope will also make inroads into poverty. However, the way in which jobs are distributed among poor and non-poor jobseekers is crucial. Our general equilibrium microsimulation model confirms the expectation that a higher wage elasticity of labour demand is associated with larger reductions in poverty. We also find that a greater proportion of new jobs accrue to poor jobseekers when the elasticity is high. While youth-targeting does not improve the poverty-reducing effect of the policy, sectors such as textiles, accommodation, and construction services with their pro-poor employment profiles are good candidates for targeting. |
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Keywords: | wage subsidies unemployment poverty South Africa computable general equilibrium microsimulation modelling |
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