Estimating the Short Run Effects of South Africa's Employment Tax Incentive on Youth Employment Probabilities using A Difference‐in‐Differences Approach

Abstract

AbstractSouth Africa's Employment Tax Incentive (ETI) came into effect on the 1st of January 2014, with the objective of reducing the substantial national youth unemployment rate. Under the ETI, firms are eligible to claim a deduction from their taxes due, for the portion of their wage bill that is paid to certain groups of youth employees. We utilise several waves of nationally representative data and implement a difference‐in‐differences methodology at the individual level, in order to identify the effects of the ETI on youth employment probabilities in the short run. Our primary finding is that the ETI did not have any statistically significant and positive effects on youth employment probabilities. The point estimate from our preferred regression is −0.005 and the 95% confidence interval is from −0.017 to 0.006. We also find no evidence that the ETI has resulted in an increase in the level of churning in the labour market for youth. Thus, any decrease in tax revenues that arise from the ETI are effectively accruing to firms which, collectively, would have employed as many youth even in the absence of the ETI.