Policy Changes in the Swedish Payroll Tax Rate - Implications for Youth Unemployment

Abstract

In 2007 and 2009 the Swedish payroll tax rates decreased for employees under the age of 26 years. The decrease partly discontinued in 2015 and will be completely taken away in June 2016, increasing the wage costs for those employing young workers. Earlier studies suggest that a decrease in tax rates that cover a large group has small effects that do not justify the costs of such an investment. However, some theories and studies imply that changes in payroll tax rates that go in the other direction would have negative effects on both firms and employment rates that exceed the positive effects of a decrease, due to rigid wages downwardly and companies adjusting to cheaper work force. This study investigates the possible negative employment effects on the subgroup young foreign-born as well as whether retail firms will decrease working hours of young in general due to increased tax expenditure, using a survey distributed to organizational representatives in such firms. After taking low response rates and the possibility of skewed results into consideration, some negative effects on employment were found.