Permanent Wage Cost Subsidies for Older Workers: An Effective Tool for Increasing Working Time and Postponing Early Retirement?

Abstract

In several OECD countries age-targeted wage subsidies have been introduced to increase the employment of older workers, but evidence on their effectiveness is scarce. This paper examines the effects of a permanent wage cost subsidy in Belgium on the employment rate, working time and hourly wage. We estimate these effects by integrating Inverse Probability Weighting in a, possibly trend-adjusted, Difference-in-Differences of endogenously sampled repeated cross sections. We find small positive short-run impacts on working time and larger ones on the employment rate, but only for employees at high risk of leaving to early retirement. The wage is not affected.

Keywords: wage cost subsidies, older workers, weighted Difference-in-Differences, endogenous sampling

JEL Classification: J14, C21, J18, J3