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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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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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