Type | Working Paper - WIDER Working Paper |
Title | The effect of wage subsidies on job retention |
Author(s) | |
Volume | 114/2022 |
Publication (Day/Month/Year) | 2022 |
URL | https://www.wider.unu.edu/sites/default/files/Publications/Working-paper/PDF/wp2022-114-effect-wage-subsidies-job-retention-evidence-South-Africa-COVID-19-pandemic.pdf |
Abstract | Wage subsidies have served as a primary labour market policy used around the world to mitigate job losses in response to the COVID-19 pandemic. In South Africa, where unemployment is among the highest globally, the Temporary Employer–Employee Relief Scheme supported millions of workers in a far-reaching and progressive manner. We make use of unique labour force panel data to estimate the causal effect of the policy on short-term job retention among formal private sector workers, who represent the majority of workers in the country, by exploiting a temporary institutional eligibility detail and estimating a difference-in-differences model. We find that the policy increased the probability of remaining employed by 16 percentage points in the short-term. This finding holds when subjected to several robustness tests. We further estimate heterogeneous and progressive effects across the wage distribution with larger effects observed for lower-wage workers, against a backdrop of regressively distributed job loss in the country. Our analysis provides evidence on the role of wage subsidies in the mitigation of job loss during crises in developing countries. |