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The Employment Effects of Low-Wage Subsidies

  • Kristiina Huttunen
  • Jukka Pirttilä
  • Roope Uusitalo

Low-wage subsidies are often proposed as a solution to the unemployment problem among the low skilled. Yet the empirical evidence on the effects of low-wage subsidies is surprisingly scarce. This paper examines the employment effects of a Finnish payroll tax subsidy scheme, which is targeted at the employers of older, full-time, low-wage workers. The system’s clear eligibility criteria open up an opportunity for a reliable estimation of the causal impacts of the subsidy, using a difference-in-difference-in-differences approach. Our results indicate that the subsidy system had no effects on the employment rate. However, it appears to have increased the probability of part-time workers obtaining full-time employment.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-05/cesifo1_wp3043.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3043.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3043
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  1. Andreas Knabe & Ronnie Schöb & Joachim Weimann, 2006. "Marginal Employment Subsidization: A New Concept and a Reappraisal," CESifo Working Paper Series 1707, CESifo Group Munich.
  2. Holmlund, B. & Kolm, A.S., 1995. "Progressive Taxation, Wage Setting and Unemployment - Theory and Swedish Evidence," Papers 15, Uppsala - Working Paper Series.
  3. Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, vol. 84(2), pages 54-58, May.
  4. Jonathan Gruber, 1995. "The Incidence of Payroll Taxation: Evidence from Chile," NBER Working Papers 5053, National Bureau of Economic Research, Inc.
  5. Jackman, R. & Layard, R., 1989. "The Real Effects Of Tax-Based Incomes Policies," Papers 341, London School of Economics - Centre for Labour Economics.
  6. Nada Eissa & Jeffrey B. Liebman, 1995. "Labor Supply Response to the Earned Income Tax Credit," NBER Working Papers 5158, National Bureau of Economic Research, Inc.
  7. Lawrence F. Katz, 1996. "Wage Subsidies for the Disadvantaged," NBER Working Papers 5679, National Bureau of Economic Research, Inc.
  8. Kramarz, Francis & Philippon, Thomas, 2001. "The impact of differential payroll tax subsidies on minimum wage employment," Journal of Public Economics, Elsevier, vol. 82(1), pages 115-146, October.
  9. Bovenberg, A.L. & Graafland, J.J. & de Mooij, R.A., 2000. "Tax reform and the Dutch labour market : An applied general equilibrium approach," Other publications TiSEM a22f887a-ce1a-4aa2-ad01-6, Tilburg University, School of Economics and Management.
  10. repec:cup:cbooks:9780521497695 is not listed on IDEAS
  11. David Card & Dean R. Hyslop, 2005. "Estimating the Effects of a Time-Limited Earnings Subsidy for Welfare-Leavers," Econometrica, Econometric Society, vol. 73(6), pages 1723-1770, November.
  12. Gruber, Jonathan, 1994. "The Incidence of Mandated Maternity Benefits," American Economic Review, American Economic Association, vol. 84(3), pages 622-41, June.
  13. Alessio J. G. Brown, & Christian Merkl & Dennis J. Snower, 2006. "Comparing the Effectiveness of Employment Subsidies," Kiel Working Papers 1302, Kiel Institute for the World Economy.
  14. Andreas Knabe & Ronnie Schöb, 2008. "Minimum Wages and their Alternatives: A Critical Assessment," CESifo Working Paper Series 2494, CESifo Group Munich.
  15. Blundell, Richard, 2006. "Earned income tax credit policies: Impact and optimality: The Adam Smith Lecture, 2005," Labour Economics, Elsevier, vol. 13(4), pages 423-443, August.
  16. Koskela, Erkki & Vilmunen, Jouko, 1996. "Tax progression is good for employment in popular models of trade union behaviour," Labour Economics, Elsevier, vol. 3(1), pages 65-80, August.
  17. Brian Bell & Richard Blundell & John Reenen, 1999. "Getting the Unemployed Back to Work: The Role of Targeted Wage Subsidies," International Tax and Public Finance, Springer, vol. 6(3), pages 339-360, August.
  18. Edlin Aaron S. & Phelps Edmund, 2009. "Getting Serious about Job Creation: Part I," The Economists' Voice, De Gruyter, vol. 6(5), pages 1-5, April.
  19. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
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