Working Paper: CEPR ID: DP14052
Authors: David Seim; Emmanuel Saez; Benjamin Schoefer
Abstract: This paper uses administrative data to analyze a large and 8-year long employer payroll tax rate cut in Sweden for young workers aged 26 or less. First, we document that while active, the reform raised youth employment among the treated workers. The long-run effects are twice as large as the medium-run effects and likely driven by labor demand (as workers’ take-home wages did not respond). Second, we document novel labor-demand-driven “hysteresis” from this policy – i.e. persistent employment effects even after the subsidy no longer applies – along two dimensions. Over the lifecycle, employment effects persist even after workers age out of eligibility. Two years after the repeal, employment remains elevated at the maximal reform level in the formerly subsidized ages. These hysteresis effects triple the direct employment effects of the reform. Discrimination against young workers in job posting fell during the reform and does not bounce back after repeal, potentially explaining our results.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| employer payroll tax cut (J65) | youth employment increase (J68) |
| youth employment increase (J68) | long-run effects (E65) |
| hysteresis effects (E32) | sustained employment (J68) |
| employer payroll tax cut (J65) | decline in discrimination against young workers (J79) |
| hysteresis effects (E32) | triple direct employment effects (J68) |