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The Effect of Subsidies to Mature-Age Employment: a Quasi-Experimental Analysis

Author

Listed:
  • Paulino Font

    (University of Essex)

  • Mario Izquierdo

    (Bank of Spain)

  • Sergio Puente

    (Bank of Spain)

Abstract

This paper evaluates the effect of subsidies to employment maintenance on the probability of mature-age workers staying in the firm. Implementing a quasi-experimental design provided by changes in Spanish labor market regulations, we are able to estimate that the end of subsidies had a small though statistically significant and negative impact on workers’ firm attachment rate. Our results show that a 1 pp. increase in the worker’s cost translates into a 0.11 pp. increase in the cumulative probability of the worker separating from the firm in the next five months. This effect is mainly driven by workers with relatively less seniority in the firm, who present lower dismissal costs; and by workers in low-skill jobs, for which the wage productivity gap seems to negatively evolve with age. In terms of a cost-benefit analysis, we document that the previous higher rate of job maintenance was achieved at a disproportionate cost, and therefore the elimination of the subsidy resulted in in Social Security savings larger than foregone wages.

Suggested Citation

  • Paulino Font & Mario Izquierdo & Sergio Puente, 2021. "The Effect of Subsidies to Mature-Age Employment: a Quasi-Experimental Analysis," Journal of Labor Research, Springer, vol. 42(2), pages 123-147, June.
    • Handle: RePEc:spr:jlabre:v:42:y:2021:i:2:d:10.1007_s12122-021-09318-7
    DOI: 10.1007/s12122-021-09318-7
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    References listed on IDEAS

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    More about this item

    Keywords

    Labor tax subsidy; Deadweight loss; Labor demand; Dismissal costs; Social security;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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