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. In response, the government introduced the Employment Tax Incentive (ETI) program in 2014 to boost employment opportunities for youth. This study examines the extent to which the ETI program increases youth employment by looking at hiring and separation rates. The study also examines whether the program displaces non-youth workers—one of the main concerns among unions in South Africa. 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 a 0.003 probability points higher of hiring youth in the 18-24 age bracket. However, we find a significant reduction in both hiring and separation rates for workers in the 24-29 and 30-44 age groups, suggesting some displacement effects not only on at-risk non-youth workers but also 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. Overall, the paper uncovers important heterogeneity in the impacts that could inform policymakers to re-configure the program for better targeting.