Labour Costs and the Decision to Hire the First Employee

Highlights

• In 2016, Belgium permanently exempted new employers from Social Security Contributions (SSC) for the first employeey
• This policy enables studying the relationship between labour costs and the decision to hire a first employeey
• Immediately following the reform, the number of new first-time employers jumped by 31%y
• The elasticity of labour demand at the extensive margin, i.e. 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]

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].

Download Research Memorandum

Cockx, B., & Desiere, S. (2023). Labour costs and the decision to hire the first employee. ROA. ROA Research Memoranda No. 001 https://doi.org/10.26481/umaror.2023001