The Effect of Subsidies to Mature-Age Employment: a Quasi-Experimental Analysis

Paulino Font, Mario Izquierdo () and Sergio Puente
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Paulino Font: University of Essex

Journal of Labor Research, 2021, vol. 42, issue 2, No 1, 123-147

Abstract: Abstract This paper evaluates the effect of subsidies to employment maintenance on the probability of mature-age workers staying in the firm. Implementing a quasi-experimental design provided by changes in Spanish labor market regulations, we are able to estimate that the end of subsidies had a small though statistically significant and negative impact on workers’ firm attachment rate. Our results show that a 1 pp. increase in the worker’s cost translates into a 0.11 pp. increase in the cumulative probability of the worker separating from the firm in the next five months. This effect is mainly driven by workers with relatively less seniority in the firm, who present lower dismissal costs; and by workers in low-skill jobs, for which the wage productivity gap seems to negatively evolve with age. In terms of a cost-benefit analysis, we document that the previous higher rate of job maintenance was achieved at a disproportionate cost, and therefore the elimination of the subsidy resulted in in Social Security savings larger than foregone wages.

Keywords: Labor tax subsidy; Deadweight loss; Labor demand; Dismissal costs; Social security (search for similar items in EconPapers)
JEL-codes: H21 H31 J23 J32 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s12122-021-09318-7

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