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Labour costs and the decision to hire the first employee

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  • Bart Cockx

    (IRES/LIDAM, UCLouvain. Department of Economics, Ghent University, Belgium. IZA, Bonn, Germany. CESIfo, Munich, Germany. ROA, Maastricht University, the Netherlands.)

  • Sam Desiere

    (Department of Economics, Ghent University, Belgium. IZA, Bonn, Germany.)

Abstract

Firms without paid employees account for up to 80% of all firms, but only a small minority ever hires. This paper investigates the relationship between labour costs and the decision to hire a first employee and become an employer. Leveraging a unique policy in Belgium that permanently reduced the labour cost of the first employee by 13%, we find that the number of new, first-time employers jumped by 31% immediately following the reform. The elasticity of the probability to hire the first employee with respect to the labour cost is −2.39 [95% CI: −3.45, −1.25].

Suggested Citation

  • Bart Cockx & Sam Desiere, 2023. "Labour costs and the decision to hire the first employee," LIDAM Discussion Papers IRES 2023011, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2023011
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    Cited by:

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    More about this item

    Keywords

    nonemployers; hiring decisions; payroll taxes; small businesses;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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