Evaluating the general equilibrium effects of a wage subsidy scheme for South Africa

19 September 2012
Publication Type: Working Paper
JEL Code: C68, J38

Unemployment among semi- and unskilled workers has reached severe proportions (over 50 %) and threatens the political and economic stability of the South African economy. In this paper a computable general equilibrium (CGE) model of the South African economy to assess the economy-wide impact of a wage subsidy targeted at semi- and unskilled workers. We find that employment of semi- and unskilled workers can be raised quite significantly, although the financial costs can be substantial. The targeting of the correct sectors as well as the budgetary process (deficit financed versus balanced budget) followed play an important role in the outcome.

Working Paper 021
1 September 2006
Journal: 2006, South African Journal of Economics, 74(3), 442-62