The employment effects of low-wage subsidies

Working Papers 254 Kristiina Huttunen, Jukka Pirttilä, Roope Uusitalo Roope

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 the 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
Published: 1.10.2009
JEL: H24, J23, J68
ISBN: 978-952-209-073-7
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