2019. March 13. 11:42

The Effect of Labour Cost Reduction on Employment of Vulnerable Groups

Evaluation of the Hungarian Job Protection Act

András Svraka
senior researcher, Ministry of Finance, Hungary

Published in: Public Finance Quarterly 2019/1. (p. 72-92.)

Summary: In 2013 Hungary introduced large scale targeted employers’ social security contribution cuts for the young, old, lowskilled, and other marginally attached workforce, called the Job Protection Act. In this paper I estimate the employment effects of the programme for the main target groups using the discontinuities in the JPA’s design in a differences in differences framework on administrative datasources. My estimates show robust and economically significant employment effects for the Job Protection Act, a total 1.2 point increase in employment rate three years after the introduction. The Job Protection Act was highly effective in the young and low-skilled target groups, with high self-financing ratios, while it was only marginally effective in the old target group. The results suggests that targeted tax incentives can be a cost-efficient way of increasing employment in vulnerable groups.

Keywords: Job Protection Act, targeted tax incentives, differences in differences

JEL codes: H24, J21, J23

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