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[Excerpt] Labour taxes make up a substantial share of overall labour costs in all developed countries. Reducing taxes on labour, in particular on the employer side, could be one way of inducing employers to hire more workers or to retain staff that might otherwise have been let go. Employment subsidies for hiring new workers operate in a similar way by increasing incentives for employers to create new jobs. Both types of measure – employment incentives and reducing employer non-wage labour costs – have been deployed in many EU Member States since the onset of the crisis. They have been used either as a general labour demand-enhancing measure or else targeted at specific categories. These are often groups with limited labour market attachment such as the young, low-skilled or low-paid and the long-term unemployed.

The main aim of this report is to assess the effectiveness of employer-side incentives in generating positive labour market outcomes. The report summarises the current state of knowledge on the effectiveness of shifts in employer social security contributions, employer payroll taxes and functionally equivalent employer incentives as employment-generating policy interventions. The assessment involved a review of 68 methodologically robust evaluations of specific policy interventions, including a detailed meta-analysis. The evaluations covered relate largely to policies implemented in EU Member States from 2000 onwards. The report also presents an overview of more recent (2008–2014) policies implemented in different Member States.


Suggested Citation
European Foundation for the Improvement of Living and Working Conditions. (2017). Employment effects of reduced non-wage labour costs. Luxembourg: Publications Office of the European Union.