The employment effects of low-wage subsidies

Low-wage subsidies are often proposed as a solution to the unemployment problem among the low skilled but the empirical evidence on their effects is still scarce. This paper examines the employment effects of a Finnish payroll tax subsidy scheme, which is targeted at the employers of older, full-time, low-wage workers. The system's clear eligibility criteria open up an opportunity for a reliable estimation of the causal impacts of the subsidy scheme. Our results indicate that the subsidy system had no effect on the employment rate or wages of the eligible groups, but it increased slightly working hours among those already at work.

► The study examines the employment effects of a payroll tax reduction in Finland.
► The clear eligibility criteria of the system enable a DDD estimation strategy.
► The system did not increase the employment rate of the target group.
► It increased, however, the working hours for eligible workers.