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Do payroll tax cuts raise youth employment?

Author

Listed:
  • Egebark, Johan

    (Dept. of Economics, Stockholm University)

  • Kaunitz, Niklas

    (SOFI)

Abstract

In 2007, the Swedish employer-paid payroll tax was cut on a large scale for young workers, substantially reducing labor costs for this group. Using Diff erence-in-Differences paired with exact matching, we estimate a small impact, both on employment and on wages, implying a labor demand elasticity for young workers at around -0.31. Since the tax reduction applied also to existing employments, the cost of the reform was sizable, and the estimated cost per created job is at more than four times that of directly hiring workers at the average wage. Hence, we conclude that payroll tax cuts are an inefficient way to boost employment for young individuals.

Suggested Citation

  • Egebark, Johan & Kaunitz, Niklas, 2014. "Do payroll tax cuts raise youth employment?," Research Papers in Economics 2014:1, Stockholm University, Department of Economics.
  • Handle: RePEc:hhs:sunrpe:2014_0001
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Youth unemployment; Payroll tax; Tax subsidy; Labor costs; Exact matching;
    All these keywords.

    JEL classification:

    • 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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