YOUTH UNEMPLOYMENT, FIRM SIZE AND RESERVATION WAGES IN SOUTH AFRICA

The level of youth unemployment in South Africa is much higher than in comparator countries. We investigate whether one of the reasons may be that the wages young people want or need are above those that they could reasonably expect to earn given their characteristics. Unlike previous work on the relationship between reservation wages and unemployment we differentiate between wages in different sizes of firms. Larger firms pay more and thus, even if reservation wages are similar to average predicted wages, they may be above the wages that young people could expect to earn in smaller firms. We find that this is the case.