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The employment effects of a pandemic wage subsidy

Author

Listed:
  • Smart, Michael
  • Kronberg, Matthew
  • Lesica, Josip
  • Liu, Huju

Abstract

We estimate causal effects of a pandemic-era wage subsidy 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 0.05 to 0.22, implying a small employment effect of the program and an estimated fiscal cost per job saved of more than $185,000 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

  • Smart, Michael & Kronberg, Matthew & Lesica, Josip & Liu, Huju, 2025. "The employment effects of a pandemic wage subsidy," Journal of Public Economics, Elsevier, vol. 246(C).
    • Handle: RePEc:eee:pubeco:v:246:y:2025:i:c:s0047272725000568
    DOI: 10.1016/j.jpubeco.2025.105358
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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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