Do Payroll Tax Cuts Raise Youth Employment?

44 Pages Posted: 5 Jan 2014

See all articles by Johan Egebark

Johan Egebark

Research Institute of Industrial Economics (IFN)

Niklas Kaunitz

Stockholm University - Swedish Institute for Social Research (SOFI)

Date Written: January 2, 2014

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 Difference-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.

Keywords: Youth unemployment, Payroll tax, Tax subsidy, Labor costs, Exact matching

JEL Classification: H25, H32, J23, J38, J68

Suggested Citation

Egebark, Johan and Kaunitz, Niklas, Do Payroll Tax Cuts Raise Youth Employment? (January 2, 2014). IFN Working Paper No. 1001, Available at SSRN: https://ssrn.com/abstract=2369989

Johan Egebark (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Niklas Kaunitz

Stockholm University - Swedish Institute for Social Research (SOFI) ( email )

Stockholm, 106 91
Sweden

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
223
Abstract Views
1,064
rank
195,253
PlumX Metrics