Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/34891 
Year of Publication: 
2008
Series/Report no.: 
IZA Discussion Papers No. 3508
Publisher: 
Institute for the Study of Labor (IZA), Bonn
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: 
Document Type: 
Working Paper

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