| Abstract: |
Past evidence on the incidence of payroll tax subsidies on employment and
wages for disadvantaged workers has been quite mixed. Therefore, this paper
makes use of a unique panel of firm level data and a natural experiment to
analyze the incidence of wage subsidies on full-time manual workers and
pre-tax wages. Using a number of straightforward evaluation estimators we find
that employment subsidies increased full-time manual employment and pre-tax
wages. Moreover, we find that employment subsidies have increased employment
but not wages by more in low-wage exporting industries. This is line with a
textbook description of labor markets where it is predicted that the incidence
of employment subsidies on employment and wages is larger the more elastic is
product and therefore labor demand and where the employment effect is larger
and the wage effect is smaller the more elastic is labor supply because of a
binding minimum wage. |