Can a Wage Subsidy Be Used to Improve Women's Formal Employment in Zambia

Abstract

The number of women employed in the Zambian formal sector is small, which has likely played a role in the low level of women’s empowerment in the country. As a result, the government of Zambia is willing to adopt policies that can positively contribute to women’s formal employment. Based on this policy objective, we propose a wage-subsidy program that considers the best design in implementation and financing. To achieve our research objectives, we calibrated a Computable General Equilibrium (CGE) methodology to a gendered Social Accounting Matrix (SAM) that disaggregated labour into skills and type of employment. Our findings suggest that a wage-subsidy program that targeted women would increase their participation in the formal sector, potentially leading to an increase in household income as well as in women’s contribution to this income. Under our simulations, government revenue fell slightly when an appropriate financing option was applied, but potential benefits to the empowerment of women ultimately outweigh costs. Alternatively, to ensure that the most is obtained from a wage subsidy, corporate taxes could be raised to finance this program. The overall effect of this option would be an improvement in the performance of the economy as well as in household welfare.