Economics at your fingertips  

How Do Firms Respond to Reduced Labor Costs? Evidence from the 2007 Swedish Payroll Tax Reform

Sven-Olov Daunfeldt, Anton Gidehag () and Niklas Rudholm ()
Additional contact information
Anton Gidehag: Institute of Retail Economics
Niklas Rudholm: Institute of Retail Economics

Journal of Industry, Competition and Trade, 2021, vol. 21, issue 3, No 1, 315-338

Abstract: 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.

Keywords: Payroll tax reform; Labor demand; Employment; Wages; H25; H32; J23; J32; L20 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: How do firms respond to reduced labor costs? Evidence from the 2007 Swedish payroll tax reform (2019) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.springer. ... on/journal/10842/PS2

DOI: 10.1007/s10842-021-00356-6

Access Statistics for this article

Journal of Industry, Competition and Trade is currently edited by Karl Aiginger, Marcel Canoy and Michael Peneder

More articles in Journal of Industry, Competition and Trade from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

Page updated 2023-11-13
Handle: RePEc:kap:jincot:v:21:y:2021:i:3:d:10.1007_s10842-021-00356-6