Wage and Employment Effects of Wage Subsidies

27.10.2025 14:15 – 15:30

INSTITUTE OF ECONOMICS AND ECONOMETRICS SEMINAR

Abstract:

This paper provides new evidence on how wage subsidies affect wages and employment. Using French administrative data, a 2015 nationwide wage subsidy reform, and a shift-share IV design, I leverage variation in reform exposure across local labor markets stemming from differences in the socio-economic composition of the local working-age population. Local labor markets more exposed to an increase in wage subsidies see faster growth in hours worked--driven mainly by rising employment--and slower growth in average hourly wages. The economic incidence is not borne solely by workers, as 31% of the subsidy passes through to wages on average.

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