Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey
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Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey. / Betcherman, Gordon; Daysal, N. Meltem; Pagés, Carmen.
In: Labour Economics, Vol. 17, No. 4, 08.2010, p. 710-722.Research output: Contribution to journal › Journal article › Research › peer-review
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TY - JOUR
T1 - Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey
AU - Betcherman, Gordon
AU - Daysal, N. Meltem
AU - Pagés, Carmen
PY - 2010/8
Y1 - 2010/8
N2 - This paper studies the effects on registered employment and number of registered establishments of two employment subsidy schemes in Turkey. We implement a difference-in-differences methodology to construct appropriate counterfactuals for the covered provinces. Our findings suggest that both subsidy programs did lead to significant net increases in registered jobs in eligible provinces (5%-13% for the first program and 11%-15% for the second). However, the cost of the actual job creation was high because of substantial deadweight losses, particularly for the first program (47% and 78%). Because of better design features, the second subsidy program had lower, though still significant, deadweight losses (27%-46%). Although constrained by data availability, the evidence suggests that the dominant effect of subsidies was to increase social security registration of firms and workers rather than boosting total employment and economic activity. This supports the theory that in countries with weak enforcement institutions, high labor taxes on low-wage workers may lead to substantial incentives for firms and workers to operate informally.
AB - This paper studies the effects on registered employment and number of registered establishments of two employment subsidy schemes in Turkey. We implement a difference-in-differences methodology to construct appropriate counterfactuals for the covered provinces. Our findings suggest that both subsidy programs did lead to significant net increases in registered jobs in eligible provinces (5%-13% for the first program and 11%-15% for the second). However, the cost of the actual job creation was high because of substantial deadweight losses, particularly for the first program (47% and 78%). Because of better design features, the second subsidy program had lower, though still significant, deadweight losses (27%-46%). Although constrained by data availability, the evidence suggests that the dominant effect of subsidies was to increase social security registration of firms and workers rather than boosting total employment and economic activity. This supports the theory that in countries with weak enforcement institutions, high labor taxes on low-wage workers may lead to substantial incentives for firms and workers to operate informally.
KW - Deadweight loss
KW - Employment subsidies
KW - Formalization
KW - Social security contributions
UR - http://www.scopus.com/inward/record.url?scp=77953543452&partnerID=8YFLogxK
U2 - 10.1016/j.labeco.2009.12.002
DO - 10.1016/j.labeco.2009.12.002
M3 - Journal article
AN - SCOPUS:77953543452
VL - 17
SP - 710
EP - 722
JO - Labour Economics
JF - Labour Economics
SN - 0927-5371
IS - 4
ER -
ID: 256519235