Research Papers in Economics, Department of Economics, Stockholm University
Do payroll tax cuts raise youth employment?
() and Niklas Kaunitz
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 Diff erence-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
Keywords: Youth unemployment; Payroll tax; Tax subsidy; Labor costs; Exact matching; (follow links to similar papers)
JEL-Codes: H25; H32; J23; J38; J68; (follow links to similar papers)
43 pages, January 30, 2014
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