Hysteresis from Employer Subsidies

Emmanuel Saez, Benjamin Schoefer and David Seim

No 26391, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: H2 J23 J71 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-eur and nep-lma
Note: EFG LS PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published as Emmanuel Saez & Benjamin Schoefer & David Seim, 2021. "Hysteresis from employer subsidies," Journal of Public Economics, vol 200.

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Journal Article: Hysteresis from employer subsidies (2021)
Working Paper: Hysteresis from Employer Subsidies (2019)
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