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Do pro-employment public policies matter?

Author

Listed:
  • Asma Raies

    (URED, FSEG, University of Sfax (Tunisia) / TEAM Paris 1 Sorbonne (France))

Abstract

Theoretical and empirical studies addressing the effectiveness issue of the wage subsidy scheme are somewhat non-concluding. This paper attempts to contribute to the recent litterature of the field by studying the effectiveness of wage subsidies and by comparing their consequences with those associated with capital investment subsidies program. We develop a neoclassical model with Romer (1990)'s variety expansion framework in which we include employees' human capital. We find that the wage subsidy has no effect on the employment rate. This arises because the positive incitation effect of the subsidy is entirely compensated by the negative distortion effect of the tax exerted on human capital investment. Furthermore, a subsidy on capital goods purchased by final firms is likely to be effective in raising equilibrium employment rate provided that the relative contribution of capital goods to production exceeds the one of human capital.

Suggested Citation

  • Asma Raies, 2012. "Do pro-employment public policies matter?," Economics Bulletin, AccessEcon, vol. 32(3), pages 2442-2452.
    • Handle: RePEc:ebl:ecbull:eb-12-00618
    as

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    References listed on IDEAS

    as
    1. Huttunen, Kristiina & Pirttilä, Jukka & Uusitalo, Roope, 2013. "The employment effects of low-wage subsidies," Journal of Public Economics, Elsevier, vol. 97(C), pages 49-60.
    2. George Psacharopoulos & Harry Anthony Patrinos, 2004. "Returns to investment in education: a further update," Education Economics, Taylor & Francis Journals, vol. 12(2), pages 111-134.
    3. repec:lic:licosd:17807 is not listed on IDEAS
    4. Petrucci, Alberto & Phelps, Edmund S, 2005. "Capital Subsidies versus Labor Subsidies: A Trade-Off between Capital and Employment?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 907-922, October.
    5. Ossi Korkeamäki & Roope Uusitalo, 2009. "Employment and wage effects of a payroll-tax cut—evidence from a regional experiment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 753-772, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Unemployment; human capital investment; subsides on labour wage; subsides on firms' purchased capital goods.;
    All these keywords.

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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