School Brown Bag: Dario Tortarolo

Wage effects of employer-mediated transfers (with Santiago Garriga)

Link to paper (.pdf)

Abstract: We explore how the way in which tax credits are disbursed affects employer's behavior, wages, and employment. We exploit a change in the payment system in Argentina that was gradually rolled out between 2003 and 2010. Under the old system, employers were in charge of delivering family allowances to their employees together with the monthly salary, and the transfer was deducted from employer social security contributions. For transparency purposes, the government eliminated the intermediary role of firms and started depositing the transfer directly into workers' bank accounts. Using employer-employee administrative data and an event-study design, we show that the way tax credits are disbursed matters for the final economic incidence. Our evidence suggests that employers shift part of the incidence of the transfer by paying lower wages. The mechanisms are consistent with a labor demand channel rather than pay equity concerns (e.g., effect mostly driven by small firms and new hires rather than incumbent workers). Our findings are therefore in line with the hypothesis that transfers are not all captured dollar for dollar by workers.