Employment effects of reduced non-wage labour costs

Reducing labour taxes or offering incentives to hire new workers could motivate employers to either retain staff who might otherwise have been let go or to create new jobs. Since the onset of the financial crisis in 2008, both types of measure have been deployed in many EU Member States. This report reviews the effectiveness of measures designed to reduce the employer part of the tax wedge in an effort to stimulate positive labour market outcomes. It provides an overview of the reforms adopted since 2008 across the EU Member States to stimulate labour demand, focusing on policies aimed at reducing the cost of labour for employers. It analyses the effectiveness of shifts in employer social security contributions, employer payroll taxes and functionally equivalent employer incentives as employment-generating policy interventions. The findings show mixed evidence of positive employment effects from relevant policy reforms but suggest that measures targeted at specific groups of workers are more likely to be successful.

See also Report Annexes 1-7