To Örebro University

One way for policymakers to reduce labor costs and stimulate the recruitment of marginalized groups of labor in a highly unionized economy is to lower payroll taxes. However, the efficiency of this policy instrument has been questioned, and previous evaluations have mostly found small employment effects for such reforms. We investigate the effects of a payroll tax cut in Sweden that decreased firms' labor costs in relation to the number of young employees that they had employed when the reform was implemented in 2007. We find that most firms received small labor cost savings as a result of the reform, but those that received larger cost savings increased their number of employees significantly more than firms that received no, or minor, labor cost savings. Our findings also suggest that the payroll tax cut increased the total wages paid to incumbent workers, but the wage effect was too small to offset the positive extensive-margin employment effect of the reform. In total, we find that the Swedish payroll tax reform created 18,100 jobs over the period 2006-2008; most of these jobs were within the targeted group of young employees.

The topic of this thesis is firm behavior and how it is shaped by institutional changes and firms’ recruitment decisions.

The first essay studies how the recruitment decisions made by small and medium-sized enterprises (SMEs) affect their subsequent productivity development. Previous studies have shown that being able to recruit employees with complementary skills is associated with skill improvement among incumbent personnel, suggesting that new recruits promote productivity through knowledge spillovers. Using matched employer-employee data, we find that recruiting personnel from large multinational firms can be instrumental for the performance of SMEs.

In the second essay, we evaluate the labor market effects of the 2007 Swedish youth payroll reform. This reform generated considerable labor cost savings for firms, related to their pre-reform number of young employees. We study the effects of these savings on firms’ subsequent employment growth and wage development. Our findings suggest that a total of 18,100 jobs were created over the period 2006-2008 and that the savings were partially used to increase the total wages for incumbent employees.

The third essay utilizes the 2007 Swedish youth payroll reform to analyze whether general labor cost reductions enhance labor market opportunities for non-western immigrants. In contrast to targeted and time-limited wage subsidies for immigrants, which have frequently been used in the past, these savings were not tied to a specific group or to a certain time period. A strong and positive link between the amount of firms’ labor cost savings and the employment of first-generation non-western immigrants is found.

The fourth essay evaluates the efficiency of a staff register reform introduced within the Swedish restaurant and hairdresser industries in 2007. The aim of this reform was to prevent firms from deliberately understating their wage payments and, thereby, evading taxes. We estimate the effect of the staff register reform on wages per employee and find wage increases of 2.17-10.2 percent per incumbent employee at restaurant firms during the four years following the introduction of the reform. Through a revenue-cost comparison, we compare the estimated gain in tax revenues to the total costs borne by firms and the tax authority. Our findings imply that the total costs exceed the tax revenues, suggesting that this reform is unlikely to be economically justified.

We examine the link between new employees in leading positions and subsequent productivity in small- and medium-sized enterprises (SMEs). Managers and professionals are likely to possess important tacit knowledge. They are also in a position to influence the employing firm. Exploiting rich and comprehensive panel data for Sweden in the 2001-2010 period and employing semi-parametric and quasi-experimental estimation techniques, we find that newly recruited professionals have a positive and statistically significant impact on the productivity of the hiring SME. For newly recruited managers there is no general link to the productivity of the hiring SME. We also find that professionals with experience from international firms and enterprise groups contribute the most to total factor productivity. Overall, the findings suggest the importance of mobility of key personnel for productivity-enhancing knowledge spillovers to SMEs.

Purpose: The purpose of this paper is to analyse empirically whether policies to improve the local business climate affect employment in general, and among groups of immigrants that suffer from structural unemployment.

Design/methodology/approach: The paper analyses the relation between Swedish entrepreneurs' perception of the local business climate and total employment as well as employment among immigrants born outside of Europe, a group that tends to be particularly affected by structural unemployment. Instrumental variable and Arellano-Bond GMM estimation indicate that a better local business climate improves immigrants employment considerably more than total employment.

Findings: The results suggest that improvements in institutions and policies that entrepreneurs perceive as shaping the business climate may have an important effect on employment, in particular employment of groups that tend to have high rates of structural unemployment. Given the limitations, the estimates appear robust over a variety of specifications.

Research limitations/implications: The authors use a subjective measure of local business climate policies, but instrument this with an exogenous variable and lagged variables. The unit of observation are Swedish municipalities, which in contrast to other countries control many factors important for business. Practical implications - Employment policies often focus on labour market institutions. The results suggest that other policies and their local implementation may be equally important for employment. Unfortunately the study does not reveal much detail of which specific measures give the greatest effects. That remains to be done in future research.

Social implications: The positive employment effects the authors find are particularly large for immigrants born outside of Europe. If the results are correct, then better local business climate could make an important contribution to social cohesion.

Originality/value: While there are more studies that analyse the relation between entrepreneurship and employment, much fewer previous studies have tried to establish a link between business climate policies and employment. The authors do this with a novel approach.

We examine the link between new employees in leading positions and subsequent productivity in small- and medium-sized (SME) enterprises. Managers and professionals are likely to possess important tacit knowledge. They are also in a position to influence the employing firm. Exploiting rich and comprehensive panel data for Sweden in the 2001-2010 period and employing semi-parametric and quasi-experimental estimation techniques, we find that newly recruited leading personnel have a positive and statistically significant impact on the productivity of the hiring SME. Interestingly, our results suggest that professionals with experience from international firms and enterprise groups contribute the most to total factor productivity. Overall, the findings suggest the importance of mobility of leading personnel for productivity-enhancing knowledge spillovers to SMEs. 

We examine the link between new employees in leading positions and subsequent productivity in small- and medium-sized (SME) enterprises. Managers and professionals are likely to possess important tacit knowledge. They are also in a position to influence the employing firm. Exploiting rich and comprehensive panel data for Sweden in the 2001-2010 period and employing semi-parametric and quasi-experimental estimation techniques, we find that newly recruited leading personnel have a positive and statistically significant impact on the productivity of the hiring SME. Interestingly, our results suggest that professionals with experience from international firms and enterprise groups contribute the most to total factor productivity. Overall, the findings suggest the importance of mobility of leading personnel for productivity-enhancing knowledge spillovers to SMEs.