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Hysteresis from Employer Subsidies

Author

Listed:
  • Emmanuel Saez
  • Benjamin Schoefer
  • David Seim
Abstract
This paper uses administrative data to analyze a large and 8-year long employer payroll tax rate cut in Sweden for young workers aged 26 or less. We replicate previous results documenting that during the earlier years of the reform, it raised youth employment among the treated workers, driven by labor demand (as workers' take-home wages did not respond). First, drawing on additional years of data, this paper then documents that the longer-run effects during the reform are twice as large as the medium-run effects. Second, we document novel labor-demand-driven “hysteresis” from this policy–i.e. persistent employment effects even after the subsidy no longer applies–along two dimensions. Over the lifecycle , employment effects persist even after workers age out of eligibility. Three years after the repeal , employment remains elevated at the maximal reform level in the formerly subsidized ages. These hysteresis effects more than double the direct employment effects of the reform. Discrimination against young workers in job posting fell during the reform and does not bounce back after repeal, potentially explaining our results.

Suggested Citation

  • Emmanuel Saez & Benjamin Schoefer & David Seim, 2019. "Hysteresis from Employer Subsidies," NBER Working Papers 26391, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26391
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    4. Antoine Bozio, 2024. "The unusual French policy mix towards labour market inequalities," Fiscal Studies, John Wiley & Sons, vol. 45(1), pages 43-54, March.
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    6. Alica Ida Bonk & Laure Simon, 2022. "From He-Cession to She-Stimulus? The labor market impact of fiscal policy across gender," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 13(1), pages 309-334, May.
    7. Daunfeldt, Sven-Olov & Gidehag, Anton & Seerar Westerberg, Hans, 2023. "Do reduced labor costs increase employment among minimum wage workers? Evidence from a Swedish payroll tax cut," HFI Working Papers 26, Institute of Retail Economics (Handelns Forskningsinstitut).
    8. Albanese, Andrea & Cockx, Bart & Dejemeppe, Muriel, 2024. "Long-term effects of hiring subsidies for low-educated unemployed youths," Journal of Public Economics, Elsevier, vol. 235(C).
    9. Sam Desiere & Bart Cockx, 2021. "How Effective Are Hiring Subsidies to Reduce Long-Term Unemployment among Prime-Aged Jobseekers? Evidence from Belgium," CESifo Working Paper Series 9325, CESifo.
    10. Audrey Guo, 2023. "Payroll Tax Incidence: Evidence from Unemployment Insurance," Papers 2304.05605, arXiv.org.
    11. Amina Ebrahim & Jukka Pirttilä, 2022. "A policy for the jobless youth in South Africa: Individual impacts of the Employment Tax Incentive," WIDER Working Paper Series wp-2022-124, World Institute for Development Economic Research (UNU-WIDER).
    12. Kim, Jinyoung & Kwak, Eunhye, 2023. "Long-Term Effects of Recession on Parenthood Gender Inequality," IZA Discussion Papers 16055, Institute of Labor Economics (IZA).
    13. Enrico Rubolino, 2022. "Taxing the Gender Gap: Labor Market Effects of a Payroll Tax Cut for Women in Italy," Cahiers de Recherches Economiques du Département d'économie 22.01, Université de Lausanne, Faculté des HEC, Département d’économie.
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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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