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The Effect of Labour Cost Reduction on Employment of Vulnerable Groups

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  • Svraka András

    (senior researcher, Ministry of Finance, Hungary)

Abstract

In 2013 Hungary introduced large scale targeted employers’ social security contribution cuts for the young, old, lowskilled, and other marginally attached workforce, called the Job Protection Act. In this paper I estimate the employment effects of the programme for the main target groups using the discontinuities in the JPA’s design in a differences in differences framework on administrative datasources. My estimates show robust and economically significant employment effects for the Job Protection Act, a total 1.2 point increase in employment rate three years after the introduction. The Job Protection Act was highly effective in the young and low-skilled target groups, with high self-financing ratios, while it was only marginally effective in the old target group. The results suggests that targeted tax incentives can be a cost-efficient way of increasing employment in vulnerable groups.

Suggested Citation

  • Svraka András, 2019. "The Effect of Labour Cost Reduction on Employment of Vulnerable Groups," Public Finance Quarterly, State Audit Office of Hungary, vol. 64(1), pages 72-92.
  • Handle: RePEc:pfq:journl:v:64:y:2019:i:1:p:72-92
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    References listed on IDEAS

    as
    1. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2015. "The own-wage elasticity of labor demand: A meta-regression analysis," European Economic Review, Elsevier, vol. 80(C), pages 94-119.
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    Cited by:

    1. Ulrike Huemer & Rainer Eppel & Marion Kogler & Helmut Mahringer & Lukas Schmoigl & David Pichler, 2021. "Effektivität von Instrumenten der aktiven Arbeitsmarktpolitik in unterschiedlichen Konjunkturphasen," WIFO Studies, WIFO, number 67250, May.

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    More about this item

    Keywords

    Job Protection Act; targeted tax incentives; differences in differences;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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