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Do pro-employment public policies matter?

Author

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  • Asma Raies

    (URED, FSEG, University of Sfax (Tunisia) / TEAM Paris 1 Sorbonne (France))

Abstract

Theoretical and empirical studies addressing the effectiveness issue of the wage subsidy scheme are somewhat non-concluding. This paper attempts to contribute to the recent litterature of the field by studying the effectiveness of wage subsidies and by comparing their consequences with those associated with capital investment subsidies program. We develop a neoclassical model with Romer (1990)'s variety expansion framework in which we include employees' human capital. We find that the wage subsidy has no effect on the employment rate. This arises because the positive incitation effect of the subsidy is entirely compensated by the negative distortion effect of the tax exerted on human capital investment. Furthermore, a subsidy on capital goods purchased by final firms is likely to be effective in raising equilibrium employment rate provided that the relative contribution of capital goods to production exceeds the one of human capital.

Suggested Citation

  • Asma Raies, 2012. "Do pro-employment public policies matter?," Economics Bulletin, AccessEcon, vol. 32(3), pages 2442-2452.
    • Handle: RePEc:ebl:ecbull:eb-12-00618
    as

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    References listed on IDEAS

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    2. Maarten Goos & Jozef Konings, 2007. "The Impact of Payroll Tax Reductions on Employment and Wages: A Natural Experiment Using Firm Level Data," LICOS Discussion Papers 17807, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    3. Petrucci, Alberto & Phelps, Edmund S, 2005. "Capital Subsidies versus Labor Subsidies: A Trade-Off between Capital and Employment?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 907-922, October.
    4. Huttunen, Kristiina & Pirttilä, Jukka & Uusitalo, Roope, 2013. "The employment effects of low-wage subsidies," Journal of Public Economics, Elsevier, vol. 97(C), pages 49-60.
    5. Ossi Korkeamäki & Roope Uusitalo, 2009. "Employment and wage effects of a payroll-tax cut—evidence from a regional experiment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 753-772, December.
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    More about this item

    Keywords

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    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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