Payroll Taxes and Youth Labor Demand

In 2007–09, the Swedish employer-paid payroll tax was cut on a large scale for young workers, substantially reducing labor costs for this group. Using this variation in payroll taxes across ages, we estimate a significant, but small, impact both on employment and on wages, jointly implying a demand elasticity of −0.3 . However, it turns out that these effects vary across ages, with employment response being around four times stronger for younger workers compared to older ones. Further, we find no effects on hours worked, and there is little evidence of any lasting employment effect when workers are no longer eligible for the tax reduction.