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The Effect of Labour Cost Reduction on Employment of Vulnerable Groups — Evaluation of the Hungarian Job Protection Act

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  • Svraka, András

Abstract

In 2013 Hungary introduced large scale targeted employers’ social security contribution cuts for the young, old, lowskilled, and other marginally attached workforce, called the Job Protection Act. In this paper I estimate the employment effects of the programme for the main target groups using the discontinuities in the JPA’s design in a differences in differences framework on administrative datasources. My estimates show robust and economically significant employment effects for the Job Protection Act, a total 1.2 point increase in employment rate three years after the introduction. The Job Protection Act was highly effective in the young and low-skilled target groups, with high self-financing ratios, while it was only marginally effective in the old target group. The results suggests that targeted tax incentives can be a cost-efficient way of increasing employment in vulnerable groups.

Suggested Citation

  • Svraka, András, 2019. "The Effect of Labour Cost Reduction on Employment of Vulnerable Groups — Evaluation of the Hungarian Job Protection Act," Public Finance Quarterly, Corvinus University of Budapest, vol. 64(1), pages 72-92.
    • Handle: RePEc:pfq:journl:v:64:y:2019:i:1:p:72-92
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    1. Emmanuel Saez & Benjamin Schoefer & David Seim, 2019. "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," American Economic Review, American Economic Association, vol. 109(5), pages 1717-1763, May.
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    3. Zsombor Cseres-Gergely & Agota Scharle & Arpad Foldessy, 2015. "Evaluating the impact of a well - targeted wage subsidy using administrative data," Budapest Working Papers on the Labour Market 1503, Institute of Economics, Centre for Economic and Regional Studies.
    4. Karoly Fazekas & Peter Benczur & Almos Telegdy (ed.), 2013. "The Hungarian Labour Market 2013," The Hungarian Labour Market Yearbooks, Institute of Economics, Centre for Economic and Regional Studies, number 2013, December.
    5. Andrea ALBANESE & Bart COCKX, 2015. "Permanent Wage Cost Subsidies for Older Workers. An Effective Tool for Increasing Working Time and Postponing Early Retirement?," LIDAM Discussion Papers IRES 2015006, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    6. Egebark, Johan & Kaunitz, Niklas, 2013. "Do payroll tax cuts raise youth employment?," Working Paper Series 2013:27, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    7. Péter Benczúr & Gábor Kátay & Áron Kiss, 2012. "Assessing changes of the Hungarian tax and transfer system: A general-equilibrium microsimulation approach," MNB Working Papers 2012/7, Magyar Nemzeti Bank (Central Bank of Hungary).
    8. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2015. "The own-wage elasticity of labor demand: A meta-regression analysis," European Economic Review, Elsevier, vol. 80(C), pages 94-119.
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    Cited by:

    1. Ulrike Huemer & Rainer Eppel & Marion Kogler & Helmut Mahringer & Lukas Schmoigl & David Pichler, 2021. "Effektivität von Instrumenten der aktiven Arbeitsmarktpolitik in unterschiedlichen Konjunkturphasen," WIFO Studies, WIFO, number 67250, April.

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    More about this item

    Keywords

    Job Protection Act; targeted tax incentives; differences in differences;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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