Wage subsidies create jobs. At least, this is what the South African Government believed would help solve the country’s 40 percent youth unemployment crisis. Youth unemployment in South Africa has remained critically high for over a decade, affecting more than 40% of young people. In response, the Government introduced the Employment Tax Incentive (ETI) in 2014. This policy was designed to reduce the cost of hiring young workers by offering companies a wage subsidy if they employed people aged 18–29 earning below R6 000 per month.

The ETI allows employers to claim back up to 50% of a young worker’s monthly wage as a tax credit. The full subsidy is available for workers earning between R2 000 and R4 000. The amount decreases if the worker earns above R4 000, and no subsidy is given if wages go above R6 000. The subsidy lasts for 24 months. The policy excludes public sector jobs and applies only to new hires. Its goal is to create formal work opportunities and give young people work experience that may help them stay employed in the future.

The study investigated the effects of this significant payroll tax credit for young, low-wage workers in South Africa. Researchers used survey data from the Quarterly Labour Force Survey (QLFS) and anonymised tax data from the National Treasury to examine employment, unemployment, earnings, and job duration. The goal was to find out whether eligible young workers had better job outcomes compared to similar groups after the policy began.

The study employed a method known as triple differences (DDD) to assess the impact of the ETI on the eligible group. The DDD method calculates the effect by comparing three distinct groups, this helps isolate the true effect of the ETI from other factors that may have impacted youth or low-wage workers in general.