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Do Employment Subsidies Work? Evidence from Regionally Targeted Subsidies in Turkey

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Author Info
Betcherman, Gordon () (World Bank)
Daysal, N. Meltem () (University of Maryland)
Pagés, Carmen () (Inter-American Development Bank)

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Abstract

This paper studies the effects on registered employment, earnings, and number of registered establishments of two employment subsidy schemes in Turkey. We implement a difference-in-differences methodology to construct appropriate counterfactuals for the covered provinces. Our findings suggest that both subsidy programs did lead to significant net increases in registered jobs in eligible provinces (5%-13% for the first program and 11%-15% for the second). However, the cost of the actual job creation was high because of substantial deadweight losses, particularly for the first program (47% and 78%). Because of better design features, the second subsidy program had lower, though still significant, deadweight losses (23%-44%). Although constrained by data availability, the evidence suggests that the dominant effect of subsidies was to increase social security registration of firms and workers rather than boosting total employment and economic activity. This supports the hypothesis that in countries with weak enforcement institutions, high labor taxes on low-wage workers may lead to substantial incentives for firms and workers to operate informally.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3508.

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Length: 51 pages
Date of creation: May 2008
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Handle: RePEc:iza:izadps:dp3508

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Related research
Keywords: employment subsidies; deadweight loss; formalization; social security contribution;

Other versions of this item:

Find related papers by JEL classification:
H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Private Pensions

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References listed on IDEAS
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    Other versions:
  2. Sourafel Girma & Holger Görg & Eric Strobl & Frank Walsh, 2007. "Creating Jobs Through Public Subsidies: An Empirical Analysis," IZA Discussion Papers 3168, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  3. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February. [Downloadable!] (restricted)
    Other versions:
  4. Evans, William N. & Lien, Diana S., 2005. "The benefits of prenatal care: evidence from the PAT bus strike," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 207-239. [Downloadable!] (restricted)
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  6. Gerfin, Michael & Lechner, Michael & Steiger, Heidi, 2005. "Does subsidised temporary employment get the unemployed back to work? Aneconometric analysis of two different schemes," Labour Economics, Elsevier, vol. 12(6), pages 807-835, December. [Downloadable!] (restricted)
    Other versions:
  7. David H. Autor & John J. Donohue III & Stewart J. Schwab, 2003. "The Costs of Wrongful-Discharge Laws," NBER Working Papers 9425, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Stephen Nickell, 2003. "Employment and Taxes," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  9. David H. Autor & William R. Kerr & Adriana D. Kugler, 2007. "Does Employment Protection Reduce Productivity? Evidence From US States," Economic Journal, Royal Economic Society, vol. 117(521), pages 189-217, 06. [Downloadable!] (restricted)
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  11. Timothy Besley & Robin Burgess, 2004. "Can Labor Regulation Hinder Economic Performance? Evidence from India," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 91-134, February. [Downloadable!] (restricted)
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