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The Employment Effects of a Pandemic Wage Subsidy

Author

Listed:
  • Michael Smart
  • Matthew Kronberg
  • Josip Lesica
  • Danny Leung
  • Huju Liu

Abstract

We estimate the causal effects of a pandemic-era wage subsidy program in Canada on job losses and business closures. Our estimates use administrative microdata and a regression discontinuity strategy to estimate the effects of marginal changes in the wage subsidy rate. The estimated net wage elasticity of employment was 0.11, implying a small aggregate employment effect of the program and an estimated fiscal cost per job saved of nearly $200,000 per year. Subsidy payments caused a small but persistent reduction in business closure rates during subsequent waves of the pandemic, and increased earnings of existing employees. In all, our results suggest the subsidies did little to preserve job matches, but played a greater role in the overall social insurance response to the pandemic.

Suggested Citation

  • Michael Smart & Matthew Kronberg & Josip Lesica & Danny Leung & Huju Liu, 2023. "The Employment Effects of a Pandemic Wage Subsidy," CESifo Working Paper Series 10218, CESifo.
    • Handle: RePEc:ces:ceswps:_10218
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    References listed on IDEAS

    as
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    3. Steven Hamilton, 2020. "A Tale of Two Wage Subsidies: The American and Australian Fiscal Responses to COVID-19," National Tax Journal, National Tax Association;National Tax Journal, vol. 73(3), pages 829-846, September.
    4. David S. Lee & Thomas Lemieux, 2010. "Regression Discontinuity Designs in Economics," Journal of Economic Literature, American Economic Association, vol. 48(2), pages 281-355, June.
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    6. Humphries, John Eric & Neilson, Christopher A. & Ulyssea, Gabriel, 2020. "Information frictions and access to the Paycheck Protection Program," Journal of Public Economics, Elsevier, vol. 190(C).
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    8. repec:aei:rpaper:1008582843 is not listed on IDEAS
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    More about this item

    Keywords

    Canada emergency wage subsidy; Covid-19; incrementality;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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