Policies supporting small businesses are popular among policymakers but often criticised by economists for their potential to distort the economy. This paper provides a comprehensive evaluation of a unique policy that subsidises the rst employee. Empirically, we nd that the policy led to a surge in the number of rms employing exactly one employee, without a noticeable eect on the number of rms with two or more employees. A simple frictionless general equilibrium model of occupational choices predicts the empirical facts remarkably well. Leveraging our model, we show that the general equilibrium eects on wages and aggregate output are likely to be small. However, the policy is expensive. Our ndings support the traditional view that size-dependent subsidies distort the optimal allocation of resources.
Belgium’s 2016 payroll tax exemption for first-time employers triggered a sharp increase in firms hiring their first worker but little growth among larger firms. To account for this pattern, we develop and estimate a directed search model—with discrete hiring, firm heterogeneity, and endogenous entry—using Belgian microdata. The exemption reduces the high marginal cost of the first hire, enabling many previously non-hiring entrepreneurs to become employers, but most lack the productivity needed to expand beyond one worker. The model matches the post-reform size distribution and identifies the conditions under which size-dependent hiring subsidies can foster sustained firm growth.
Cockx, B., H. Deng, S. Desiere, T. Toniolo, and B. Van der Linden (2025). De Loonlastenverlaging Voor de Eerste Werknemer - Enkele Inzichten. Gentse Economische Inzichten, Universiteit Gent.
Cockx, B., H. Deng, S. Desiere, T. Toniolo, and B. Van der Linden (2025). La mesure ‘zéro coti’ déçoit. Focus, 34, UCLouvain.
Toniolo, T. (2025). In-work benefits and eligibility based on wage rates: the effects on time worked
This paper investigates the impact of introducing the Social Work Bonus (SWB), a payroll tax reduction for low-wage individuals in salaried employment in Belgium. The SWB differs from other in-work benefits aimed at enhancing work incentives because it specifically targets individuals with a low-wage rate rather than those with low labour earnings. This approach prevents part-time traps, where individuals may reduce their working time to qualify for in-work benefits or may not increase their working time to avoid losing the benefits. Using individual administrative panel data and a difference-in-differences estimation strategy, we observe a relatively large increase in the quarterly number of days worked for young salaried employees with a part-time contract. No such effect is found for older employees or those on full-time contracts. These findings indicate that, for certain subgroups of the population, in-work benefits targeted at the wage rate can lead to a significant increase in working time.