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Low employment in Small Firms in a High Wage Regime: the South African Wage Curve & Wage Subsidies

Principal Investigator: von Fintel, D

The primary hypothesis of this research is to understand sources of labour market inflexibility in South Africa. Previous micro evidence for South Africa (Kingdon & Knight, 2006) suggests that wages respond to local unemployment in much the same way as they do in developed economies. However, this defies conventional macro evidence (Fedderke 2012), which highlights wage inflexibility in the country, despite uncharacteristically high unemployment levels. Government policy objectives suggest that wage subsidies should be introduced to introduce more flexibility in this relationship and allow employment creation through lower wage bills for firms.

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