Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248332 
Year of Publication: 
2021
Series/Report no.: 
WIDER Working Paper No. 2021/118
Publisher: 
The United Nations University World Institute for Development Economics Research (UNU-WIDER), Helsinki
Abstract: 
We present new evidence on the effects of South Africa's Employment Tax Incentive (ETI), a hiring and employment wage subsidy aimed at reducing youth unemployment. We show that attempts to estimate firm-level treatment effects via conditional difference-in-differences are likely to fail when comparing ETI to matched non-ETI firms. We show that even when eventstudy conditional pre-trends appear flat, the sensitivity of these estimates to the matching period means that pre-trends are not informative about counterfactual post-treatment parallel trends, and a broad array of matching approaches do not create credible post-treatment counterfactuals. We argue that this is likely due to mean reversion among matched non-ETI firms. A partial identification approach based on difference-in-differences with parametric time trends suggests that the ETI has increased firm-level youth employment, though some important caveats apply. Our results prompt a re-evaluation of the (sometimes contradictory) existing literature on the employment effects of the ETI: we judge that, in light of our findings, there is insufficient evidence to conclude on its impact either way.
Subjects: 
difference-in-differences
employment
event-study
parallel trends
South Africa
wage subsidies
JEL: 
C23
J38
H25
H32
Persistent Identifier of the first edition: 
ISBN: 
978-92-9267-058-0
Document Type: 
Working Paper

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