Do Employment Subsidies Work? Evidence from Regionally Targeted Subsidies in Turkey

Gordon Betcherman (), N. Meltem Daysal and Carmen Pages
Additional contact information
Gordon Betcherman: University of Ottawa

No 3508, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper studies the effects on registered employment, earnings, and number of registered establishments of two employment subsidy schemes in Turkey. We implement a difference-in-differences methodology to construct appropriate counterfactuals for the covered provinces. Our findings suggest that both subsidy programs did lead to significant net increases in registered jobs in eligible provinces (5%-13% for the first program and 11%-15% for the second). However, the cost of the actual job creation was high because of substantial deadweight losses, particularly for the first program (47% and 78%). Because of better design features, the second subsidy program had lower, though still significant, deadweight losses (23%-44%). Although constrained by data availability, the evidence suggests that the dominant effect of subsidies was to increase social security registration of firms and workers rather than boosting total employment and economic activity. This supports the hypothesis that in countries with weak enforcement institutions, high labor taxes on low-wage workers may lead to substantial incentives for firms and workers to operate informally.

Keywords: social security contribution; employment subsidies; deadweight loss; formalization (search for similar items in EconPapers)
JEL-codes: H32 J23 J32 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2008-05
New Economics Papers: this item is included in nep-cwa and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Published - published in: Labour Economics, 17:4 (August 2010), 710-722

Downloads: (external link)
https://docs.iza.org/dp3508.pdf (application/pdf)

Related works:
Journal Article: Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey (2010)
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: https://EconPapers.repec.org/RePEc:iza:izadps:dp3508

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().