Working Paper Series,
Research Institute of Industrial Economics

Abstract: In 2007, the Swedish employer-paid payroll tax was reduced substantially for young workers. We estimate the labor market response for different ages, and at different phases of the business cycle. The overall impact on employment and wages is relatively small, implying an average labor demand elasticity for young workers at around –0.32. While the effect on wages is consistently small, the employment effect differs markedly across ages and over the business cycle. For 21–22 year-old workers, the employment increase is 4–5 times larger than for 25-year-olds, and the estimated demand elasticities are strongly procyclical, approaching zero in the deep 2009 recession. These results suggest that payroll tax reductions need to be narrowly targeted, and carefully timed, in order to be effective. In addition, we find that the payroll tax reduction had no effects on hours worked. There is also little evidence that the employment effect for an individual remained when she was no longer eligible for the tax reduction.

Keywords: Payroll taxes; Labor demand; Youth Employment; Labor demand elasticity; Age heterogeneity; Business Cycle; Wage shifting; Tax subsidy

JEL-codes: H22; H25; H32; J23; J38; J68

Language: English

50 pages, First version: January 3, 2014. Revised: June 7, 2017. Earlier revisions: June 7, 2017.

Full text files

wp1001.pdf  

Download statistics

• Research Institute of Industrial Economics
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Elisabeth Gustafsson ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:iuiwop:1001This page generated on 2024-09-13 22:15:50.