Wage effects of non-wage labour costs

María Cervini-Plá, Xavier Ramos, José Ignacio Silva

Research output: Contribution to journalArticleResearchpeer-review

5 Citations (Scopus)


© 2014 Elsevier B.V. We study wage effects of two important elements of non-wage labour costs: firing costs and payroll taxes. We exploit a reform that introduced substantial reduction in these two provisions for unemployed workers aged less than 30 and over 45. years who got a permanent job. A matching model with heterogeneous workers predicts positive wage effects of reducing firing costs but ambiguous wage effects of reducing payroll taxes, for both new entrant and incumbent workers. Difference-in-differences estimates and simulation of the model show positive wage effects for both new entrant and incumbent workers. The reduction in firing costs accounts for up to half of the overall wage increase for new entrants but only 10% for incumbents.
Original languageEnglish
Pages (from-to)113-137
JournalEuropean Economic Review
Publication statusPublished - 1 Nov 2014


  • C23
  • D31
  • Difference-in-difference
  • Dismissal costs
  • Evaluation of labour market reforms
  • J31
  • Matching model
  • Payroll tax


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