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Salience of social security contributions and employment

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  • Iñigo Iturbe-Ormaetxe

Abstract

Social security contributions in most countries are split between employers and employees. According to standard incidence analysis, social security contributions affect employment negatively, but it is irrelevant how they are divided between employers and employees. This paper considers the possibility that (i) workers perceive a linkage between current contributions and future benefits, and (ii) they value employer’s contributions less than own contributions, as the former are less “salient.” Under these assumptions, I find that employers’ contributions have a stronger (negative) effect on employment than employees’ contributions. Furthermore, a change in how contributions are divided, which reduces the share of employers, is beneficial for employment. Finally, making employers’ contributions more visible to workers also has a positive effect on employment. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Iñigo Iturbe-Ormaetxe, 2015. "Salience of social security contributions and employment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 741-759, October.
    • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:5:p:741-759
    DOI: 10.1007/s10797-014-9322-3
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    Cited by:

    1. Nicole Bosch, 2019. "The Incidence of Pension Contributions," CPB Discussion Paper 388, CPB Netherlands Bureau for Economic Policy Analysis.
    2. Wu, Huiwan, 2024. "How does enforcement of social insurance law minimize income gaps within firms: From a perspective of worker bargaining power," Finance Research Letters, Elsevier, vol. 62(PB).
    3. Nicole Bosch, 2019. "The Incidence of Pension Contributions," CPB Discussion Paper 388.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    4. José L. Torres, 2022. "Social security contributions distribution and economic activity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(2), pages 378-407, April.
    5. Nicole Bosch & Casper Ewijk & Maja Micevska Scharf & Sander Muns, 2022. "The Incidence of Pension Contributions: A Panel Based Analysis of the Impact of Pension Contributions on Labor Cost, Wages and Labor Supply," De Economist, Springer, vol. 170(1), pages 107-132, February.
    6. Panagiotis Palaios & Evangelia Papapetrou, 2019. "Asymmetric dynamics in the social contributions and social benefits nexus in Greece," Economic Change and Restructuring, Springer, vol. 52(4), pages 327-349, November.
    7. Jin, Gang & Zhang, Jiwen & Ye, Yongwei & Yao, Shiqi & Song, Jingxiang, 2024. "Social insurance law and firm markup in China," Economic Modelling, Elsevier, vol. 132(C).

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    More about this item

    Keywords

    Payroll tax; Social security; Tax incidence; Tax salience; D03; H22; J08;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies

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