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Wage Subsidies and Job Retention in a Developing Country: Evidence from South Africa

Author

Listed:
  • Timothy Köhler
  • Haroon Bhorat
  • Robert Hill

    (Development Policy Research Unit, University of Cape Town)

Abstract
Wage subsidies served as a dominant labour market policy response around the world to mitigate job losses in response to the COVID-19 pandemic. However, no causal evidence of their effects exists for developing countries. We use unique panel labour force survey data and exploit a temporary institutional eligibility detail to estimate the causal effects of such a policy – the Temporary Employer-Employee Relief Scheme (TERS) – on job retention among formal private sector employees in South Africa. Using a Difference-in-Differences design, within the context of an economy with one of the highest unemployment rates in the world, we find that the policy increased the probability of remaining employed in the short-term by 15.6 percentage points. Our findings imply that the policy saved 2.7 million jobs during April and May 2020, at a monthly cost of ZAR13 195 (US$1 851 PPP) per job saved. While this cost is large relative to the wage costs of jobs supported by the policy, it compares favourably to more developed country contexts. However, two-thirds of recipients were inframarginal and would have remained employed anyway in the policy’s absence, arguably due to prioritisation of rapid disbursement of relief over accurate targeting. We additionally examine heterogenous effects by subsidy intensity, and find that effects are positive but marginally regressively distributed across the subsidy distribution.

Suggested Citation

  • Timothy Köhler & Haroon Bhorat & Robert Hill, 2023. "Wage Subsidies and Job Retention in a Developing Country: Evidence from South Africa," Working Papers 202302, University of Cape Town, Development Policy Research Unit.
    • Handle: RePEc:ctw:wpaper:202302
    as

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    File URL: https://commerce.uct.ac.za/sites/default/files/media/documents/commerce_uct_ac_za/1093/DPRU%20WP202302.pdf
    File Function: First version, 2023
    Download Restriction: no
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    More about this item

    Keywords

    COVID-19; South Africa; labour market; wage subsidy; job loss; Temporary Employer-Employee Relief Scheme;
    All these keywords.

    JEL classification:

    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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