The effect of wage subsidies on job retention in a developing country

Wage subsidies served as a dominant labour market policy response around the world to mitigate job losses in response to the COVID-19 pandemic. However, no causal evidence of their effects exists for developing countries. We use unique panel labour force survey data and exploit a temporary institutional eligibility detail to estimate the causal effects of such a policy—the Temporary Employer/Employee Relief Scheme (TERS)—on job retention among formal private sector employees in South Africa. Using a difference-in-differences design, within the context of an economy with one of the highest unemployment rates in the world, we find that the policy increased the probability of remaining employed in the short term by 15.6 percentage points.