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Title:Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey PDF Logo
Authors:Betcherman, Gordon
Daysal, N. Meltem
Pagés, Carmen
Issue Date:2008
Series/Report no.:IZA Discussion Papers 3508
Abstract:This paper studies the effects on registered employment, earnings, and number of registered establishments of two employment subsidy schemes in Turkey. We implement a difference-in-differences methodology to construct appropriate counterfactuals for the covered provinces. Our findings suggest that both subsidy programs did lead to significant net increases in registered jobs in eligible provinces (5%-13% for the first program and 11%-15% for the second). However, the cost of the actual job creation was high because of substantial deadweight losses, particularly for the first program (47% and 78%). Because of better design features, the second subsidy program had lower, though still significant, deadweight losses (23%-44%). Although constrained by data availability, the evidence suggests that the dominant effect of subsidies was to increase social security registration of firms and workers rather than boosting total employment and economic activity. This supports the hypothesis that in countries with weak enforcement institutions, high labor taxes on low-wage workers may lead to substantial incentives for firms and workers to operate informally.
Subjects:Employment subsidies
deadweight loss
formalization
social security contributions
JEL:H32
Persistent Identifier of the first edition:urn:nbn:de:101:1-2008060524
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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