To Örebro University

Payroll tax cuts are considered inefficient for increasing employment among outsiders because insiders will use their power to bargain for higher wages at the expense of outsiders' possibility of becoming employed. The extent to which insiders or outsiders reap the rewards of payroll tax cuts is a matter of debate, and previous literature has largely focused on the employment effects of outsiders. Using wage statistics of employees in the Swedish retail sector, we investigate the effects of a youth payroll tax cut in 2007 on insiders' wage earnings and the number of hours worked. In line with earlier studies, the results show that the payroll tax cut increased insiders' total wage earnings. However, only 21% of the increase in wage earnings resulted from higher bargained wages. 57% of the wage increase corresponds to a higher intensive margin of employment, and the rest was attributed to the number of hours worked by insiders with a higher hourly wage rate. Thus, there is little to suggest that insiders can absorb large amounts of payroll tax cuts in the form of higher bargained wages, even when a small number of workers hold the most bargaining power.

We use a youth payroll tax cut in Sweden to investigate whether retail firms that were exposed to substantial labor cost savings increased employment of minimum wage workers more than firms that received smaller labor cost savings. Our dataset includes information on both contracted wages and working hours for most employees in the Swedish retail trade industry. The fact that a large portion of retail employees had contracted wages near the negotiated minimum wage levels at the time of the reform suggests that the minimum wage levels were binding to a great extent. We also find that retail firms with large labor cost savings due to the youth payroll tax cut significantly increased both the number of minimum wage hourly employees and their working hours. We observe no such effects for employees with long-term contracts or wages well above the negotiated minimum wages. This suggests that the relatively high minimum wage levels of the Swedish retail industry prevent the employment of workers who are perceived to have low productivity.

This thesis contains five self-contained papers on firms’ hiring decisions regarding outsiders and how these decisions interact with insiders. Outsiders are broadly defined as people with a weak labor market position, e.g., unemployed, non-Western migrants or minimum-wage workers. Insiders are those who are securely employed.

In paper (1), we investigate what characterizes the firms that hire unemployed non-Western immigrants. The results show that firms active in the service industries are more likely to hire unemployed non-Western immigrants. However, this is a rare event, suggesting this sector is unlikely to ever be able to absorb more than a fraction of this outsider group under current labor market conditions.

In paper (2), we analyze whether labor cost reductions induce firms to hire outsiders in the retail industry. In this case, a Swedish youth payroll tax cut is used to determine if a reduction in firms’ labor costs increases their employment of minimum-wage retail workers. The results show that reduced labor costs incentivize firms to increase their employment of workers whose wages are close to negotiated minimum wages.

In paper (3), we investigate whether the gains from the abovementioned payroll tax cut have been absorbed in higher wages for insiders rather than increasing employment. The results show that while insiders saw their total earnings increase, the main reason for their earnings increase was that they worked more hours.

Finally, we explore whether firms’ hiring decisions regarding outsiders are related to their growth rate in papers (4) and (5). The results in paper (4) show that the fastest growing firms are more likely to hire outsiders. However, this finding does not hold when new firms are examined separately and over time. In contrast, the results in paper (5) indicate that high-growth new firms tend to recruit individuals with higher skills during their first three years of operation, suggesting that a firm’s time dimension and point in its lifecycle are important.

The number of refugees in Europe has increased dramatically in recent years, and many countries are facing great challenges to integrating these refugees into their societies. A small group of high-growth firms have at the same time attracted attention because they create the most jobs at any given point in time. Using matched employer-employee data from Statistics Sweden, we find that these high-growth firms in general are more likely to recruit first-generation immigrants that are unemployed. This provides support for the hypothesis that managers in high-growth firms, to greater extents, recruit marginalized individuals because they want to take advantage of their growth opportunities. Rapidly growing firms are thus less selective in their hiring decisions, and policies that are focused on increasing the number of high-growth firms might also help immigrants who face difficulties entering the labor market.

Although the refugee immigration crisis is one of the major socio-economic challenges in Europe, we still lack knowledge on what characterizes firms that provide jobs for unemployed immigrants. We provide an answer by investigating firms that recruit unemployed non-Western immigrants using matched employer-employee data from Statistics Sweden. We find large industry differences; firms active in the service sectors, such as the hospitality, transport, and healthcare industries, are much more likely to hire unemployed non-Western immigrants than firms in high-tech and manufacturing industries. In addition, after controlling for educational attainment and industry of occupation, firms with at least one non-Western immigrant manager hire more than four times as many unemployed non-Western immigrants than firms without any non-Western immigrant managers. Public policies that target industries might thus also influence job opportunities for immigrants and, thereby, the possibility of their integration into society. 

Although the refugee immigration crisis is one of the major socioeconomic challenges in Europe, we still lack knowledge on what characterizes firms that provide jobs for unemployed immigrants. We provide an answer by investigating firms that recruit unemployed non- Western immigrants using matched employer-employee data from Statistics Sweden. We find large industry differences; firms active in the service sectors, such as the hospitality, transport, and healthcare industries, are much more likely to hire unemployed non-Western immigrants than firms in high-tech and manufacturing industries. In addition, after controlling for educational attainment and industry of occupation, firms with at least one non-Western immigrant manager hire more than four times as many unemployed non-Western immigrants than firms without any non-Western immigrant managers.