The Employment Effects of Low-Wage Subsidies

33 Pages Posted: 14 May 2010

See all articles by Kristiina Huttunen

Kristiina Huttunen

Uppsala University

Jukka Pirttila

United Nations - World Institute for Development Economics Research (UNU/WIDER); Tampere University of Technology

Roope Uusitalo

Uppsala University - Department of Economics; IFAU - Institute for Labour Market Policy Evaluation; Government of the Republic of Finland - VATT Institute for Economic Research; IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: May 1, 2010

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.

Keywords: Low-Wage Subsidies, Employment, Social Security Contributions

JEL Classification: H24, J23, J68

Suggested Citation

Huttunen, Kristiina and Pirttila, Jukka and Uusitalo, Roope, The Employment Effects of Low-Wage Subsidies (May 1, 2010). CESifo Working Paper Series No. 3043. Available at SSRN: https://ssrn.com/abstract=1605109

Kristiina Huttunen

Uppsala University ( email )

Box 513
Uppsala, 751 20
Sweden

Jukka Pirttila (Contact Author)

United Nations - World Institute for Development Economics Research (UNU/WIDER) ( email )

Katajanokanlaituri 6B
Helsinki, FIN-00160
Finland

Tampere University of Technology ( email )

P.O. 541, Korkeakoulunkatu 8 (Festia building)
Tampere, FI-33101
Finland

Roope Uusitalo

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden

IFAU - Institute for Labour Market Policy Evaluation

Box 513
751 20 Uppsala
Sweden

Government of the Republic of Finland - VATT Institute for Economic Research

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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