Wage and Employment Effects of Wage Subsidies

• In Event: Wage Taxation and Employment

Abstract

This paper provides new evidence on how wage subsidies affect wages and employment. Using French administrative data, a 2015 nationwide wage subsidy reform, and a shift-share IV design, I leverage variation in reform exposure across local labor markets stemming from differences in the socio-economic composition of the local working-age population. Local labor markets more exposed to an increase in wage subsidies see faster growth in hours worked–driven mainly by rising employment–and slower growth in average hourly wages. The economic incidence is not borne solely by workers, as 31% of the subsidy passes through to wages on average.

Author

• Maxime Gravoueille, maxime.gravoueille@monash.edu