Youth Employment in Sub-Saharan Africa Toolkit

Youth wage subsidies are a payment made to, or claimable by, the employer for the employment of young people. Wage subsidies usually cover a proportion of the wage and non-wage costs for eligible employees, not the whole cost. They are for a limited duration.

✅Impact

The evidence comes from a pilot voucher scheme in South Africa, which was followed by a tax incentive scheme.

The South African voucher experiment showed a modest improvement (7%) in wage employment, evaluations of the programme at scale (ETI) were less promising. Meta-analysis of seven studies of ETI shows a small effect equivalent to an increase in employment of less than 3%.

📈How are wage subsidies expected to work?

The economic argument for wage subsidies is that employers do not know the productivity of young people, and so are not willing to pay them the going wage, especially if there is a minimum wage which is above the perceived value of the young person’s marginal product.

Providing a subsidy lowers the cost of hiring the worker.

More permanent employment can result from the employer observing the young person’s productivity, and as the young person acquires skills and experience during the period of subsidized employment.

🖋Design choices

There are many design choices to be made for a subsidy scheme, such as

• the size, duration and timing of subsidy
• who receives the subsidy
• the delivery mechanism
• the eligibility criteria
• any conditions, such as not laying off other workers and the young person still being employed after the subsidy ends

❗Implementation issues

For the programme to be effective it is also important that employers and potential employees know about, understand and trust the programme.

Many young people receiving the voucher did not understand how it was meant to work, and a minority of employers cashed in the voucher even if they employed a young person.

Many employers said that they will not use the subsidy partly because of the administrative burden.

🦾Strength of evidence

Confidence in study findings is low because of low confidence in the included studies (and small number of studies for earnings).

🔎Implications for research

Long-run studies of existing subsidy schemes would be useful. It would also be useful to strengthen the evidence base, researchers should pay attention to issues which reduce confidence in study findings, such as the lack of a priori power calculations, and reporting of attrition.

📜Evidence based findings for policy and practice

Based on experience to date, youth wage subsidies do not appear to be a suitable policy intervention in sub-Saharan African countries at present.

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