Series
Upjohn Institute working paper ; 24-410
DOI
10.17848/wp24-410
Issue Date
November 2024
Abstract
How costly are taxes for young firms? In this paper, we demonstrate that even small payroll taxes significantly distort entry, growth, and hiring decisions. First, leveraging cross-sectional variation in the taxes faced by new employers, we find that higher taxes discourage new firms from hiring their first workers, with an elasticity of the number of new employers to taxes of −0.1. Second, studying changes in taxes after entry, we find that higher taxes lead more firms to exit, while also reducing employment for those who survive and leading some firms to avoid taxes by using non-taxable contract labor.
Sponsorship
W.E. Upjohn Institute for Employment Research Early Career Research Award No. 23-58162-04, U.S. National Science Foundation (Grants SES-9978093, SES-0339191 and ITR-0427889), National Institute on Aging (Grant AG018854), and Alfred P. Sloan Foundation
Subject Areas
LABOR MARKET ISSUES; Entrepreneurship and innovation; UNEMPLOYMENT, DISABILITY, and INCOME SUPPORT PROGRAMS; Unemployment insurance; Benefit financing
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Citation
Guo, Audrey and Melanie Wallskog. 2024. "New Employer Payroll Taxes and Entrepreneurship." Upjohn Institute Working Paper 24-410. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. https://doi.org/10.17848/wp24-410