The Impact of a Payroll Tax Credit on Employment and Wages

Transcription

1 The Impact of a Payroll Tax Credit on Employment and Wages Maarten Goos1 and Jozef Konings2 1,2 Catholic University of Leuven & 2 Bureau of European Policy Advisers, European Commission

2 Structure Motivation Institutional background Results

3 1. Motivation

4 But still strong growth in labor costs

5 Especially the low-skilled are hit by the crisis

6 2. Tax Credits and related literature L. Katz (1996), NBER, Targeted jobs tax credit in the US between had positive impact on employment and wages of targeted workers. J. Gruber (1997), JOLE: Reduction in payroll tax in Chile from 30% to 5% was fully reflected in increased wages, with no effects on employment. F. Kramarz and T. Philippon (2000), JPE, dif-in-dif approach to analyze changes in labor costs of low-wage workers in France: an increase of 1% of the costs implies an increase of 1.5% in the transition probability from employment to non-employment. Low and insignificant effects of tax subsidies on entry from non-employment to employment. B. Crépon and R. Desplatz (2002),positive employment effects of reductions in the wage bill in France. A. Kugler et al (200), using Spanish LFS to show reductions in payroll taxes increased employment of young workers. R.Blundell et al (2003), JEEA, positive effects of subsidy program, on th outflows to employment among men in the UK

7 3. Institutional background of (targeted) tax credit system in Belgium Table 1: Annual per worker tax credits under Maribel II/III Manual workers Non-manual workers First 5 in small firms Other manual workers (<20 employees) Target industries Other industries (not excluded) Excluded industries Note: Amounts are in US dollars.

8 Table 2: Annual per worker tax credits under Maribel IV Manual workers Non-manual workers First 5 in small firms Other manual workers (<10 employees) X< *X *X 0 X>= * * Excluded industries Notes: Amounts are in US dollars. X measures the fraction of non-manual workers.

9 Number of firms (1) Table 4: Firms with versus without tax credits in BELFIRST Firms with tax credits Firms without tax credits FT manual Pre-tax Number of FT manual employment annual wage firms employment (2) (3) (4) (5) Pre-tax annual wage (6) Notes: Numbers reported in columns (2), (3), (5) and (6) are means. Annual wages are in US dollars.

10 Table 5: Firm level Maribel tax credits in BELFIRST Subsidy per manual worker (USD) Total subsidy as % of total labor costs (360) 1.61 (1.83) (295) 2.15 (2.26) (271) 2.64 (2.88) (359) 1.33 (2.31) Notes: Reported numbers are means and standard errors are in brackets.

11 4. Results Table 6: Difference-in-difference estimates of the impact of Maribel tax credits on log(full-time manual employment) using all years All participants Start participating Stop participating (1) (2) (3) (4) (5) (6) Received Maribel (0.004) (0.010) (0.005) Received Maribel in (0.008) (0.011) (0.009) Received Maribel in (0.006) (0.012) (0.007) Received Maribel in (0.005) (0.013) (0.005) corr( FE, regressors) Number of observations Number of firms Notes: Data are taken from BELFIRST. All estimates are fixed effects estimates controlling for firm fixed effects and year dummies. Reported standard errors are robust standard errors.

12 Table 7: Difference-in-difference estimates of the impact of Maribel tax credits on log(pre-tax wage) using all years All participants Start participating Stop participating (1) (2) (3) (4) (5) (6) Received Maribel (0.002) (0.006) (0.003) Received Maribel in (0.005) (0.007) (0.006) Received Maribel in (0.004) (0.008) (0.005) Received Maribel in (0.002) (0.008) (0.003) corr( FE, regressors) Number of observations Number of firms Notes: Data are taken from BELFIRST. All estimates are fixed effects estimates controlling for firm fixed effects and year dummies. Reported standard errors are robust standard errors.

13 Table 8: Difference-in-difference estimates of the impact of Maribel tax credits on other employment measures using all years Log(FT managers) Log(FT nonmanual empl excl Log(PT employment) Log(temporary employment) managers) (1) (2) (3) (4) (5) (6) (7) (8) Received Maribel (0.027) (0.006) (0.008) (0.053) Received Maribel in (0.031) (0.012) (0.014) (0.093) Received Maribel in Received Maribel in 1999 (0.027) (0.009) (0.011) (0.075) (0.031) (0.007) (0.009) (0.062) corr( FE, regressors) Number of observations Number of firms

14 FURTHER ROBUSTNESS Including initial employment Including control for other programs Effects persist: - Point estimate varies between 2% & 5.2% - Effects of other programs also positive

15 Table 11: Difference-in-differences estimates of the impact of Maribel tax credits by industry using all years Log(FT manual employment) (1) Received Maribel (0.004) Received Maribel x dummy for Mining and quarrying (0.070) Manufacturing (0.010) Construction (0.008) Wholesale and retail (0.006) Hotels and restaurants (0.021) Transport and communication (0.020) Business services (0.020) Public services Log(pre-tax wage) (2) (0.002) (0.051) (0.005) (0.005) (0.004) (0.013) (0.011) (0.012) (0.015) (0.028) Number of observations Number of firms Notes: Data are taken from BELFIRST. All estimates are fixed effects estimates controlling for firm fixed effects and year dummies. The industries used in the analysis are taken from Table 5 given a sufficiently large fraction of Maribel employment. Reported standard errors are robust standard errors.

16 5. Conclusions This paper provided evidence that payroll tax reductions targeted towards low-wage (manual) workers had positive effects on employment of this category of workers. No evidence of displacement effects Stronger effects when targeted to export oriented industries (consistent with the idea that open sectors have higher demand elasticities) A reduction in employer contributions of 2% is associated with an increase of 5.7% on average in mannual employment and an increase of 1.7% for wages. This implies an elasticity of well above 1