Subsidising mature age employment or throwing coins Into a wishing well: a quasi-experimental analysis

Paulino Font, Mario Izquierdo () and Sergio Puente
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Paulino Font: Banco de España

No 1740, Working Papers from Banco de España

Abstract: This paper evaluates the effect that subsidies to employment maintenance have on the probability of mature age workers staying in the firm. Implementing a quasi-experimental design provided by changes in Spanish labour market regulations, we are able to estimate that subsidy removal had a small though significant impact on the 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 was 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 wageproductivity gap seems to negatively evolve with age. In terms of 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 Social Security efficiency gains.

Keywords: deadweight loss; labour tax subsidy; labour demand; dismissal costs (search for similar items in EconPapers)
JEL-codes: H21 H31 J23 J32 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2017-11
New Economics Papers: this item is included in nep-age and nep-eur
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1740

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