Labour costs and the decision to hire the first employee

Bart Cockx, Sam Desiere*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

Firms without paid employees account for up to 80 % of all firms, but only a small minority ever hires. This paper investigates the relationship between labour costs and the decision to hire a first employee and become an employer. Leveraging a unique policy in Belgium that permanently reduced the labour cost of the first employee by 13 %, we find that the number of new, first-time employers jumped by 31 % immediately following the reform. The elasticity of the probability to hire the first employee with respect to the labour cost is -2.39 [95 % CI: -3.45, -1.25].
Original languageEnglish
Article number104859
JournalEuropean Economic Review
Volume170
DOIs
Publication statusPublished - 1 Nov 2024

JEL classifications

  • d22 - Firm Behavior: Empirical Analysis
  • h25 - Business Taxes and Subsidies including sales and value-added (VAT)
  • j08 - Labor Economics Policies
  • j23 - Labor Demand
  • l26 - Entrepreneurship
  • m13 - "New Firms; Startups"

Keywords

  • Hiring decisions
  • Nonemployers
  • Payroll taxes
  • Small businesses

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