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Do payroll tax cuts raise youth employment?

Johan Egebark () and Niklas Kaunitz

No 2014:1, Research Papers in Economics from Stockholm University, Department of Economics

Abstract: In 2007, the Swedish employer-paid payroll tax was cut on a large scale for young workers, substantially reducing labor costs for this group. Using Diff erence-in-Differences paired with exact matching, we estimate a small impact, both on employment and on wages, implying a labor demand elasticity for young workers at around -0.31. Since the tax reduction applied also to existing employments, the cost of the reform was sizable, and the estimated cost per created job is at more than four times that of directly hiring workers at the average wage. Hence, we conclude that payroll tax cuts are an inefficient way to boost employment for young individuals.

Keywords: Youth unemployment; Payroll tax; Tax subsidy; Labor costs; Exact matching (search for similar items in EconPapers)
JEL-codes: H25 H32 J23 J38 J68 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2014-01-30
New Economics Papers: this item is included in nep-eur, nep-lma and nep-pub
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Citations: View citations in EconPapers (14) Track citations by RSS feed

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Working Paper: Do payroll tax cuts raise youth employment? (2013) Downloads
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