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Prospective Analysis Of A Wage Subsidy For Cape Town Youth

Date Added: Jul 2011
Format: PDF

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, the authors 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, they 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.