A policy for the (jobless) youth: The employment tax incentive

Type Thesis or Dissertation - PhD Thesis
Title A policy for the (jobless) youth: The employment tax incentive
Publication (Day/Month/Year) 2021
URL https://open.uct.ac.za/bitstream/handle/11427/33733/thesis_com_2021_ebrahim​amina.pdf?sequence=4&isAllowed=y
The Employment Tax Incentive (ETI) is a first of its kind wage subsidy policy in South Africa. Designed to tackle the problem of youth unemployment, the ETI differs from previous policies as it aims to address unemployment through stimulating job creation. Youth unemployment has remained above 40 percent in the past ten years and is one of South Africa’s key challenges. The policy was adopted in the face of this alarmingly high level of youth unemployment and at a time where the aggregate demand was low. This thesis is an important contribution to the academic literature on the demand for young workers by providing insights into this large active labour market policy intervention. The first substantive contribution is the preparation and development of a panel dataset based on payroll tax records. The tax data panel is then used to investigate the beneficiaries of the subsidy. Large firms in retail; manufacturing and financial services sectors are responsible for the highest
number and largest value of subsidy claims. The subsidy is well targeted reaching younger workers in the eligible group. The subsidy is, however, only reaching half of all subsidy eligible workers. The second contribution is the investigation of job creation at the firm level. Using a matched
difference-in-differences approach, a subset of ETI firms is found to have increased their employment of youth and these results are robust to various measures of youth employment. No evidence of displacement of ineligible workers if found. The third contribution explores the labour market outcomes of individuals eligible for the subsidy. Using both tax and survey data, I estimate the intention-to-treat impacts of the ETI using
a triple differences method. There are very small positive effects on earnings and entry into employment and no evidence of change on overall employment and unemployment rates for young, low-wage workers. The thesis concludes by assessing the aggregate implications from these results for understanding youth unemployment in the South African labour market and the role of active labour market policy in overcoming this problem.

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