Wage Subsidy and Labor Market Flexibility in South Africa

In this paper, the authors use a highly disaggregate general equilibrium model to analyze the feasibility of a wage subsidy to unskilled workers in South Africa, isolating and estimating its potential employment effects and fiscal cost. They captur...

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Bibliographic Details
Main Authors:	Go, Delfin S., Kearney, Marna, Korman, Vijdan, Robinson, Sherman, Thierfelder, Karen
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCOUNTING ADJUSTMENT PROCESS AGGREGATE DEMAND AGGREGATE INCOME AGRICULTURE ANNUAL EARNINGS ANNUAL INCOME ANNUAL WAGE AVERAGE EARNINGS AVERAGE GROWTH AVERAGE WAGE AVERAGE WAGES BENCHMARK BENEFICIARIES CALCULATIONS CLERKS COLLEGE DEGREE COMMODITIES CONCENTRATION RATIOS CONSUMPTION EXPENDITURES CONTRIBUTION DEVELOPMENT POLICY DISCOURAGED WORKERS DOMESTIC WORKERS EARNING EARNINGS ECONOMETRIC ANALYSIS ECONOMETRIC MODELING ECONOMETRICS ECONOMIC ACTIVITIES ECONOMIC ACTIVITY ECONOMIC ANALYSIS ECONOMIC FRAMEWORK ECONOMIC GROWTH ECONOMIC MANAGEMENT ECONOMIC PERFORMANCE ECONOMIC RESEARCH ECONOMIC SECTORS ECONOMIC STRUCTURE ECONOMICS ELASTICITY ELASTICITY OF SUBSTITUTION EMPLOYEE EMPLOYMENT EMPLOYMENT EFFECT EMPLOYMENT EFFECTS EMPLOYMENT GROWTH EMPLOYMENT IMPACT EMPLOYMENT IMPACTS EMPLOYMENT INCREASES EMPLOYMENT LEVEL EMPLOYMENT POLICY EMPLOYMENT STATUS EMPLOYMENT TRENDS EQUILIBRIUM UNEMPLOYMENT EXCHANGE RATE EXPORTS FACTOR DEMAND FACTOR MARKETS FAMILY MEMBER FEMALE WORKERS FINANCIAL SECTORS FINANCIAL SERVICES FIRM SURVEY FORMAL LABOR MARKET FUTURE RESEARCH GDP GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM ANALYSIS GINI COEFFICIENT GROSS DOMESTIC PRODUCT HIGH UNEMPLOYMENT HIGH UNEMPLOYMENT RATES HOUSEHOLD CONSUMPTION HOUSEHOLD EXPENDITURE HOUSEHOLD EXPENDITURES HOUSEHOLD INCOME HOUSEHOLD INCOMES HOUSEHOLD SURVEY HUMAN CAPITAL IMPERFECT COMPETITION INCENTIVE EFFECTS INCOME DISTRIBUTION INCOME GROUP INCOME GROUPS INCOME SOURCES INCOME TAX INCOME TAXES INCOMES INEQUALITY INFORMAL ECONOMY INFORMAL SECTOR INFORMAL SECTOR WORKERS INVENTORY JOB SEARCH JOBS LABOR COST LABOR COSTS LABOR DEMAND LABOR FORCE LABOR FORCE GROWTH LABOR MARKET LABOR MARKET CONDITIONS LABOR MARKET FLEXIBILITY LABOR MARKET INSTITUTIONS LABOR MARKET ISSUES LABOR MARKET OUTCOMES LABOR MARKET PROBLEMS LABOR MARKET RIGIDITIES LABOR MARKET RIGIDITY LABOR MARKET SITUATION LABOR MARKETS LABOR MOBILITY LABOR ORGANIZATION LABOR POLICY LABOR REGULATIONS LABOR RELATIONS LABOR SUPPLY LABOR UNIONS LABOUR LABOUR DEMAND LABOUR FORCE LABOUR MARKET LABOUR MARKETS LEVEL OF EDUCATION LUMP SUM MACROECONOMIC ADJUSTMENT MACROECONOMIC MANAGEMENT MACROECONOMICS MALE WORKERS MANUFACTURING INDUSTRY MARKET WAGE MARKET WAGES MARRIED COUPLES MINIMUM WAGE MINIMUM WAGES MULTIPLIERS NEW JOB NEW JOBS OCCUPATION OCCUPATIONS OPEN ECONOMIES PAID WORKERS PENSION PER CAPITA INCOME PERMANENT WORKERS POVERTY LEVELS POVERTY RATE POVERTY RATES PRELIMINARY EVIDENCE PRESENT ANALYSIS PRESENT STUDY PRIVATE INVESTMENT PRIVATE SAVINGS PROBABILITIES PROBABILITY PRODUCTION CAPACITY PRODUCTION FUNCTION PRODUCTION INCREASES PRODUCTION PROCESS PRODUCTIVITY PRODUCTIVITY GROWTH PUBLIC EXPENDITURES PUBLIC SERVICES REAL GDP REAL WAGE REAL WAGES RETAIL TRADE RURAL POVERTY SALES SAVINGS SCALE EFFECTS SELF-EMPLOYMENT SELF-EMPLOYMENT INCOME SEMISKILLED WORKERS SENIOR SERVICE SECTOR SERVICE SECTORS SKILL GROUPS SKILL TYPE SKILLED LABOR SKILLED WORKER SOCIAL SECURITY STRUCTURAL CHANGE STRUCTURAL UNEMPLOYMENT SUBSIDIZED JOB SUM OF MONEY TAX RATE TAX REVENUES TAXATION TECHNICAL ASSISTANCE TEMPORARY WORKERS TOTAL EMPLOYMENT TOTAL LABOR FORCE TOTAL WAGE TRADE LIBERALIZATION TRADE POLICIES TRAINING PROGRAMS UNEMPLOYED UNEMPLOYED INDIVIDUAL UNEMPLOYED INDIVIDUALS UNEMPLOYED PEOPLE UNEMPLOYMENT UNEMPLOYMENT PROBLEM UNEMPLOYMENT RATE UNION MEMBERSHIP UNSKILLED WORKERS VALUE ADDED VOCATIONAL SCHOOL VOLUNTARY UNEMPLOYMENT WAGE BILL WAGE COST WAGE DIFFERENTIALS WAGE EMPLOYMENT WAGE FLEXIBILITY WAGE GAINS WAGE INCREASES WAGE LEVEL WAGE SUBSIDIES WAGE SUBSIDY WAGE SUBSIDY SCHEME WORK EXPERIENCE WORK FORCE WORKING POOR WTO
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090323092541 http://hdl.handle.net/10986/4066

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Summary:	In this paper, the authors use a highly disaggregate general equilibrium model to analyze the feasibility of a wage subsidy to unskilled workers in South Africa, isolating and estimating its potential employment effects and fiscal cost. They capture the structural characteristics of the labor market with several labor categories and substitution possibilities, linking the economy-wide results on relative prices, wages, and employment to a micro-simulation model with occupational choice probabilities in order to investigate the poverty and distributional consequences of the policy. The impact of a wage subsidy on employment, poverty, and inequality in South Africa depends greatly on the elasticities of substitution of factors of production, being very minimal if unskilled and skilled labor are complements in production. The desired results are attainable only if there is sufficient flexibility in the labor market. Although the impact in a low case scenario can be improved by supporting policies that relax the skill constraint and increase the production capacity of the economy especially towards labor-intensive sectors, the gains from a wage subsidy are still modest if the labor market remains very rigid.

Wage Subsidy and Labor Market Flexibility in South Africa

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