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How Do Firms Respond to Reduced Labor Costs? Evidence from the 2007 Swedish Payroll Tax Reform
Journal of Industry, Competition and Trade ; 21(3):315-338, 2021.
Article in English | ProQuest Central | ID: covidwho-1990706
ABSTRACT
One way for policymakers to reduce labor costs and stimulate the recruitment of marginalized groups of labor in a highly unionized economy is to lower payroll taxes. However, the efficiency of this policy instrument has been questioned, and previous evaluations have mostly found small employment effects for such reforms. We investigate the effects of a payroll tax cut in Sweden that decreased firms’ labor costs in relation to the number of young employees that they had employed when the reform was implemented in 2007. We find that most firms received small labor cost savings as a result of the reform, but those that received larger cost savings increased their number of employees significantly more than firms that received no, or minor, labor cost savings. Our findings also suggest that the payroll tax cut increased the total wages paid to incumbent workers, but the wage effect was too small to offset the positive extensive-margin employment effect of the reform. In total, we find that the Swedish payroll tax reform created 18,100 jobs over the period 2006–2008;most of these jobs were within the targeted group of young employees.
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Full text: Available Collection: Databases of international organizations Database: ProQuest Central Language: English Journal: Journal of Industry, Competition and Trade Year: 2021 Document Type: Article

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Full text: Available Collection: Databases of international organizations Database: ProQuest Central Language: English Journal: Journal of Industry, Competition and Trade Year: 2021 Document Type: Article