Research

WORK IN PROGRESS 

In-work benefits and eligibility based on wage rates: the effects on time worked

Abstract:  This paper investigates the impact of introducing the Social Work Bonus (SWB), a payroll tax reduction for low-wage individuals in salaried employment in Belgium. The SWB differs from other in-work benefits aimed at enhancing work incentives because it specifically targets individuals with a low-wage rate rather than those with low labour earnings. This approach prevents part-time traps, where individuals may reduce their working time to qualify for in-work benefits or may not increase their working time to avoid losing the benefits. Using administrative individual panel data and a difference-in-differences estimation strategy, we find a sizable increase in the quarterly number of days worked for salaried employees with a part-time contract. This suggests that in-work benefits induce sizable labour market reactions from the treated individuals when eligibility is based on the wage rate.

Too much of a good thing? The welfare costs of massive firm entry with Sam Desiere and Gert Bijnens

Abstract:  Whether stimulating firm entry has the potential to increase aggregate output by addressing market failures or, conversely, distorts the optimal firm size distribution and reduces aggregate output remains an open question. This paper offers a comprehensive evaluation of a unique policy in Belgium that reduces the labour cost of the first employee by up to 20%. Empirically, we find that the policy resulted in a surge in the number of firms employing exactly one employee, without a noticeable effect on the number of firms employing two or more employees. A simple frictionless general equilibrium model of occupational choices predicts the empirical facts remarkably well. Leveraging our model, we show that the general equilibrium effects on wages and aggregate output are likely to be small. However, the policy is expensive. Our findings support the traditional view that size-dependent subsidies distort the optimal allocation of resources.

Permanent exemption from social security contributions: The role of hiring frictions with Gert Bijnens, Sam Desiere, Rigas Oikonomou, and Bruno Van der Linden

Abstract:  Since 2016, Belgium has permanently exempted new employers from paying social security contributions on the gross wage of one of their employees. This paper clarifies the extent to which the policy modified the behaviour of agents who would not have hired in the absence of the policy, and to what extent it affected the behaviour of agents who would have hired even without it. We find that only the former group responds to the policy, but mostly by creating single-employee employers. This casts light on why the policy had a limited impact on the stock of firms with more than one employee.  We also find that the increase in the cost of hiring caused by the policy is not substantial, and only marginally affects the firms' employment decisions.