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The Employment Effects of Low-Wage Subsidies

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  • Kristiina Huttunen
  • Jukka Pirttilä
  • Roope Uusitalo

Abstract

Low-wage subsidies are often proposed as a solution to the unemployment problem among the low skilled. Yet the empirical evidence on the effects of low-wage subsidies is surprisingly scarce. This paper examines the employment effects of a Finnish payroll tax subsidy scheme, which is targeted at the employers of older, full-time, low-wage workers. The system’s clear eligibility criteria open up an opportunity for a reliable estimation of the causal impacts of the subsidy, using a difference-in-difference-in-differences approach. Our results indicate that the subsidy system had no effects on the employment rate. However, it appears to have increased the probability of part-time workers obtaining full-time employment.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3043.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3043

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Keywords: low-wage subsidies; employment; social security contributions;

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References

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  1. Jackman, R. & Layard, R., 1989. "The Real Effects Of Tax-Based Incomes Policies," Papers 341, London School of Economics - Centre for Labour Economics.
  2. Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc.
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  7. Brown, Alessio J G & Merkl, Christian & Snower, Dennis J., 2007. "Comparing the Effectiveness of Employment Subsidies," CEPR Discussion Papers 6334, C.E.P.R. Discussion Papers.
  8. Lawrence F. Katz, 1996. "Wage Subsidies for the Disadvantaged," NBER Working Papers 5679, National Bureau of Economic Research, Inc.
  9. Brian Bell & Richard Blundell & John Van Reenen, 1999. "Getting the unemployed back to work: the role of targeted wage subsidies," IFS Working Papers W99/12, Institute for Fiscal Studies.
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  13. Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August.
  14. Edlin Aaron S. & Phelps Edmund, 2009. "Getting Serious about Job Creation: Part I," The Economists' Voice, De Gruyter, vol. 6(5), pages 1-5, April.
  15. Andreas Knabe & Ronnie Schöb, 2008. "Minimum Wages and their Alternatives: A Critical Assessment," CESifo Working Paper Series 2494, CESifo Group Munich.
  16. David Card & Dean R. Hyslop, 2004. "Estimating the Effects of a Time Limited Earnings Subsidy for Welfare Leavers," NBER Working Papers 10647, National Bureau of Economic Research, Inc.
  17. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 605-37, May.
  18. Goos, Maarten & Konings, Joep, 2007. "The impact of payroll tax reductions on employment and wages: A natural experiment using firm level data," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/120535, Katholieke Universiteit Leuven.
  19. Andreas Knabe & Ronnie Schöb & Joachim Weimann, 2006. "Marginal Employment Subsidization: A New Concept and a Reappraisal," CESifo Working Paper Series 1707, CESifo Group Munich.
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Cited by:
  1. Asma Raies, 2012. "Do pro-employment public policies matter?," Economics Bulletin, AccessEcon, vol. 32(3), pages 2442-2452.
  2. Schuenemann, Benjamin & Lechner, Michael & Wunsch, Conny, 2011. "Do Long-term Unemployed Workers Benefit from Targeted Wage Subsidies," Economics Working Paper Series 1126, University of St. Gallen, School of Economics and Political Science.

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