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 language | English |
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Article number | 104859 |
Journal | European Economic Review |
Volume | 170 |
DOIs | |
Publication status | Published - 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