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Do reduced labor costs increase employment among minimum-wage workers? Evidence from a Swedish payroll tax cut
The Confederation of Swedish Enterprise, Stockholm, Sweden.
Swedish Agency for Growth Policy Analysis.
Örebro University, Örebro University School of Business. Institute of Retail Economics, Stockholm, Sweden.ORCID iD: 0000-0003-3180-3722
2023 (English)Report (Other academic)
Abstract [en]

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.

Place, publisher, year, edition, pages
Stockholm: Institute of Retail Economics , 2023. , p. 30
Series
HFI Working Paper ; 26
Keywords [en]
Retail trade industry, minimum wages, payroll tax reform, natural experiments, collective bargaining
National Category
Economics
Identifiers
URN: urn:nbn:se:oru:diva-104374OAI: oai:DiVA.org:oru-104374DiVA, id: diva2:1738185
Available from: 2023-02-21 Created: 2023-02-21 Last updated: 2023-02-22Bibliographically approved
In thesis
1. Toward more inclusive labor markets: A firm-level perspective on hiring outsiders
Open this publication in new window or tab >>Toward more inclusive labor markets: A firm-level perspective on hiring outsiders
2023 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

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.

Place, publisher, year, edition, pages
Örebro: Örebro universitet, 2023. p. 22
Series
Örebro Studies in Economics, ISSN 1651-8896 ; 47
Keywords
Labor costs, minimum wage, payroll tax, employment, immigrants, unemployment, high-growth firms
National Category
Economics
Identifiers
urn:nbn:se:oru:diva-103017 (URN)9789175294902 (ISBN)
Public defence
2023-03-16, Örebro universitet, Forumhuset, Hörsal F, Fakultetsgatan 1, Örebro, 13:00 (Swedish)
Opponent
Supervisors
Available from: 2023-01-11 Created: 2023-01-11 Last updated: 2023-02-23Bibliographically approved

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Seerar Westerberg, Hans

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CiteExportLink to record
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Citation style
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