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The Employment Effects of a Pandemic Wage Subsidy

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  • Michael Smart
  • Matthew Kronberg
  • Josip Lesica
  • Danny Leung
  • Huju Liu

Abstract

We estimate the causal effects of a pandemic-era wage subsidy program 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 0.11, implying a small aggregate employment effect of the program and an estimated fiscal cost per job saved of nearly $200,000 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

  • Michael Smart & Matthew Kronberg & Josip Lesica & Danny Leung & Huju Liu, 2023. "The Employment Effects of a Pandemic Wage Subsidy," CESifo Working Paper Series 10218, CESifo.
    • Handle: RePEc:ces:ceswps:_10218
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    Cited by:

    1. Cahuc, Pierre, 2024. "The Micro and Macro Economics of Short-Time Work," IZA Discussion Papers 17111, Institute of Labor Economics (IZA).
    2. Dinara Alpysbayeva & Annette Alstadsæter & Wojciech Kopczuk & Simen Markussen & Oddbjørn Raaum, 2024. "Misreporting in the Norwegian business cash support scheme," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(6), pages 1463-1493, December.
    3. Cahuc, Pierre, 2024. "The micro and macro economics of short-time work," Handbook of Labor Economics,, Elsevier.

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    Keywords

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    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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