The Employment Tax Incentive – a reform proposal

Abstract

South Africa’s Youth Employment Incentive is described in this paper and its impact is reviewed. It is argued that in the context of South Africa’s deep structural unemployment, neither the empirical evidence nor the underlying theory supports the current narrowly targeted wage subsidy design. Drawing in part on comparison with the US earned income tax credit, recommendations are outlined for reform of the current youth incentive in favour of a broad-based employment subsidy. Illustrative cost estimates for alternative design parameters are set out, together with a concluding note on financing considerations.