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The Employment Effects of Low-Wage Subsidies

Author

Listed:
  • Huttunen, Kristiina

    (Aalto University)

  • Pirttilä, Jukka

    (Labour Institute for Economic Research)

  • Uusitalo, Roope

    (University of Jyväskylä)

Abstract

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.

Suggested Citation

  • Huttunen, Kristiina & Pirttilä, Jukka & Uusitalo, Roope, 2010. "The Employment Effects of Low-Wage Subsidies," IZA Discussion Papers 4931, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp4931
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    More about this item

    Keywords

    employment; social security contributions; low-wage subsidies;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy

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