@article{6e5a80e664b54ea4b77d6cbc2f9a6ec2,
title = "Wage Subsidies and Fair Wages",
abstract = "Wage subsidies can be provided directly to the worker, or indirectly by subsidizing the employer; with reduced cost of labor, employers offer higher wages. The standard literature stipulates that this statutory incidence bears no implications for the economic incidence. We propose and test a mechanism by which indirect subsidies lead to higher social welfare. Studies show that workers reciprocate higher wages with higher effort. Indirect subsidies are shifted to the workers as higher wages, leading workers to reciprocate with higher effort and productivity. A controlled laboratory experiment supports our behavioral hypotheses and confirms the behavioral and welfare implications.",
keywords = "Gift exchange, Laboratory experiment, Tax incidence, Wage subsidies, Welfare",
author = "Tomer Blumkin and Haim Pinhas and Ro'i Zultan",
note = "Funding Information: We thank Gary Charness, Raj Chetty, Dirk Krueger, David Laibson, Omer Moav, Andreas Peichl, Arno Riedl, Yona Rubinstein, Rupert Sausgruber, Jean-Robert Tyran, two anonymous referees, seminar participants at Bar-Ilan University, the Interdisciplinary Center Herzliya, Technical University of Munich, University of Vienna, Bank of Israel, and conference participants at the Economic Science Association International Meeting, Jerusalem, CESifo Behavioral Economics Area conference, the Incentives and Behavior change conference, Tel-Aviv, CESifo Employment and Social Protection Area conference, and the European Economic Association meeting in Cologne for useful comments and discussion. This research was supported by the ISRAEL SCIENCE FOUNDATION (grant No. 552/14). Funding Information: We thank Gary Charness, Raj Chetty, Dirk Krueger, David Laibson, Omer Moav, Andreas Peichl, Arno Riedl, Yona Rubinstein, Rupert Sausgruber, Jean-Robert Tyran, two anonymous referees, seminar participants at Bar-Ilan University, the Interdisciplinary Center Herzliya, Technical University of Munich, University of Vienna, Bank of Israel, and conference participants at the Economic Science Association International Meeting, Jerusalem, CESifo Behavioral Economics Area conference, the Incentives and Behavior change conference, Tel-Aviv, CESifo Employment and Social Protection Area conference, and the European Economic Association meeting in Cologne for useful comments and discussion. This research was supported by the ISRAEL SCIENCE FOUNDATION (grant No. 552/14). Publisher Copyright: {\textcopyright} 2020 Elsevier B.V.",
year = "2020",
month = aug,
day = "1",
doi = "10.1016/j.euroecorev.2020.103497",
language = "English",
volume = "127",
journal = "European Economic Review",
issn = "0014-2921",
publisher = "Elsevier",
}