Mom-and-Pop Jobs: Wage Subsidies and Youth Unemployment in South Africa

Abstract

Youth unemployment has been increasing in Africa. It is particularly pervasive in South Africa, where the youth unemployment rate is persistently high, posing considerable socioeconomic challenges. This study examines the extent to which the Employment Tax Incentive program increases youth employment by looking at hiring and separation rates. We take advantage of detailed employee-firm matched panel tax data from the National Treasury and the Revenue Service covering the 2011-2018 period and estimate a Difference-in-Difference model. We find that the program is associated with 0.003 probability points higher of hiring youth 18-24 ages. However, we find a significant reduction in hiring and separation rates for workers in the 24-29 and 30-44 age groups, suggesting some displacement effects on non-youth workers and youth in the older age bracket. We also find that the overall positive effects of hiring rates of younger workers are driven by microenterprises, typically referred to as mom-and-pop businesses.

Keywords: unemployment, labor market, wage subsidy, hiring, separation, tax