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The Employment Effects of Low-Wage Subsidies

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Author Info

  • Huttunen, Kristiina

    ()
    (Aalto University)

  • Pirttilä, Jukka

    ()
    (Labour Institute for Economic Research)

  • Uusitalo, Roope

    ()
    (HECER)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4931.

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Length: 34 pages
Date of creation: May 2010
Date of revision:
Publication status: published in: Journal of Public Economics, 2013, 97, 49–60
Handle: RePEc:iza:izadps:dp4931

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

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References

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  1. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting, and Unemployment , Theory and Swedish Evidence," Papers 1995-15, Uppsala - Working Paper Series.
  2. Brown, Alessio J. G. & Merkl, Christian & Snower, Dennis J., 2007. "Comparing the Effectiveness of Employment Subsidies," IZA Discussion Papers 2835, Institute for the Study of Labor (IZA).
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  4. 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. David Card & Dean R. Hyslop, 2005. "Estimating the Effects of a Time-Limited Earnings Subsidy for Welfare-Leavers," Econometrica, Econometric Society, vol. 73(6), pages 1723-1770, November.
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  17. 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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Citations

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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. Egebark, Johan & Kaunitz, Niklas, 2014. "Do Payroll Tax Cuts Raise Youth Employment?," Working Paper Series 1001, Research Institute of Industrial Economics.
  3. 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.
  4. Deuchert, Eva & Kauer, Lukas, 2013. "Hiring subsidies for people with a disability: Helping or hindering? - Evidence from a small scale social field experiment," Economics Working Paper Series 1335, University of St. Gallen, School of Economics and Political Science.

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