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Payroll Taxes and Youth Labor Demand

Author

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  • Egebark, Johan

    () (Research Institute of Industrial Economics (IFN))

  • Kaunitz, Niklas

    () (Department of Economics, Stockholm University)

Abstract

In 2007, the Swedish employer-paid payroll tax was reduced substantially for young workers. We estimate the labor market response for different ages, and at different phases of the business cycle. The overall impact on employment and wages is relatively small, implying an average labor demand elasticity for young workers at around –0.32. While the effect on wages is consistently small, the employment effect differs markedly across ages and over the business cycle. For 21–22 year-old workers, the employment increase is 4–5 times larger than for 25-year-olds, and the estimated demand elasticities are strongly procyclical, approaching zero in the deep 2009 recession. These results suggest that payroll tax reductions need to be narrowly targeted, and carefully timed, in order to be effective. In addition, we find that the payroll tax reduction had no effects on hours worked. There is also little evidence that the employment effect for an individual remained when she was no longer eligible for the tax reduction.

Suggested Citation

  • Egebark, Johan & Kaunitz, Niklas, 2014. "Payroll Taxes and Youth Labor Demand," Working Paper Series 1001, Research Institute of Industrial Economics, revised 07 Jun 2017.
  • Handle: RePEc:hhs:iuiwop:1001
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    Cited by:

    1. Egebark, Johan, 2016. "Effects of taxes on youth self-employment and income," Working Paper Series 2016:4, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    2. Emmanuel Saez & Benjamin Schoefer & David Seim, 2017. "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," NBER Working Papers 23976, National Bureau of Economic Research, Inc.
    3. Wennberg, Karl & Stadin, Evelina & Bergström, Andreas, 2014. "How policy could handle workplace digitization," Ratio Working Papers 237, The Ratio Institute.
    4. Kaunitz, Niklas & Egebark, Johan, 2017. "Payroll Taxes and Firm Performance," Working Paper Series 1175, Research Institute of Industrial Economics, revised 13 Apr 2018.
    5. Saez, Emmanuel & Schoefer, Benjamin & Seim, David, 2017. "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," CEPR Discussion Papers 12391, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Payroll taxes; Labor demand; Youth Employment; Labor demand elasticity; Age heterogeneity; Business Cycle; Wage shifting; Tax subsidy;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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