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Subsidising mature age employment or throwing coins Into a wishing well: a quasi-experimental analysis

Author

Listed:
  • Paulino Font

    (Banco de España)

  • Mario Izquierdo

    (Banco de España)

  • Sergio Puente

    (Banco de España)

Abstract

This paper evaluates the effect that subsidies to employment maintenance have on the probability of mature age workers staying in the firm. Implementing a quasi-experimental design provided by changes in Spanish labour market regulations, we are able to estimate that subsidy removal had a small though significant impact on the workers’ firm attachment rate. Our results show that a 1 pp increase in the worker’s cost translates into a 0.11 pp increase in the cumulative probability of the worker separating from the firm in the next five months. This effect was mainly driven by workers with relatively less seniority in the firm, who present lower dismissal costs, and by workers in low-skill jobs, for which the wageproductivity gap seems to negatively evolve with age. In terms of cost-benefit analysis, we document that the previous higher rate of job maintenance was achieved at a disproportionate cost, and therefore the elimination of the subsidy resulted in Social Security efficiency gains.

Suggested Citation

  • Paulino Font & Mario Izquierdo & Sergio Puente, 2017. "Subsidising mature age employment or throwing coins Into a wishing well: a quasi-experimental analysis," Working Papers 1740, Banco de España.
  • Handle: RePEc:bde:wpaper:1740
    as

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    References listed on IDEAS

    as
    1. Vegard Skirbekk, 2004. "Age and Individual Productivity: A Literature Survey," Vienna Yearbook of Population Research, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna, vol. 2(1), pages 133-154.
    2. Muriel Roger & Malgorzata Wasmer, 2009. "Heterogeneity matters: labour productivity differentiated by age and skills," Working Papers halshs-00575086, HAL.
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    More about this item

    Keywords

    deadweight loss; labour tax subsidy; labour demand; dismissal costs;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • 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; Retirement Plans; Private Pensions

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