Employment Effects of Payroll Tax Reforms: Evidence From Swedish Service Industries

ABSTRACT This study investigates the effects of Sweden's 2007 payroll tax reform. The research uniquely analyzes both job creation (extensive margin effects) and increased work hours for incumbent employees (intensive margin effects), which previous studies have largely overlooked. Our results show that, on average per firm, the reform led to 1.4 new full‐time employees, 0.6 new part‐time employees, and a substantial rise in work hours equivalent to 1.9 full‐time employees per firm. Total effects are roughly twice as large as in similar studies failing to take the intensive margin into account. These findings emphasize the broader impact of payroll tax reforms, highlighting the importance of considering both extensive and intensive margin employment effects in future research and policy decisions.