Working Paper: NBER ID: w26391
Authors: Emmanuel Saez; Benjamin Schoefer; David Seim
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. We replicate previous results documenting that during the earlier years of the reform, it raised youth employment among the treated workers, driven by labor demand (as workers' take-home wages did not respond). First, drawing on additional years of data, this paper then documents that the longer-run effects during the reform are twice as large as the medium-run effects. 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. Three years after the repeal, employment remains elevated at the maximal reform level in the formerly subsidized ages. These hysteresis effects more than double 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: employer subsidies; youth employment; hysteresis; payroll tax
JEL Codes: H2; J23; J71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Payroll tax cut (H29) | Youth employment rates (ages 26 and under) (J68) |
| Youth employment rates (ages 26 and under) (J68) | Labor demand responses (J23) |
| Tax cut absorption into labor costs (H31) | Net wages for young workers (J31) |
| Tax cut (H29) | Lifecycle hysteresis effects (E32) |
| Lifecycle hysteresis effects (E32) | Employment levels three years post-repeal (J63) |
| Reduced discrimination in hiring practices (J79) | Persistent employment effects (C41) |
| Tax cut (H29) | Aggregate employment effects (E24) |