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The Employment Effects of Low-Wage Subsidies

  • Huttunen, Kristiina

    ()

    (Aalto University)

  • Pirttilä, Jukka

    ()

    (Labour Institute for Economic Research)

  • Uusitalo, Roope

    ()

    (HECER)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4931.

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Length: 34 pages
Date of creation: May 2010
Date of revision:
Publication status: published in: Journal of Public Economics, 2013, 97, 49–60
Handle: RePEc:iza:izadps:dp4931
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