We examine the effects of employee and employer social security contributions (SSCs) on labor cost, hours of work, and labor cost per hour, using a long running panel dataset that allows us to exploit 35 years of policy reforms in the United Kingdom. We find that reductions in marginal rates of employee – but not employer – SSCs have positive effects on labor cost that operate through hours of work, while labor cost falls much more when average employer SSCs rates are reduced than when average employee SSCs rates are reduced, with most of this differential effect coming through reductions in hourly labor cost. We interpret this as evidence that employees change their hours in response to SSCs, but that in the short- to medium-run at least, the formal incidence of SSCs can matter for their behavioral impacts and economic incidence.
Authors

Senior Economist
Stuart is a Senior Economist working in the Tax sector, and focuses on analysing the design of the tax and benefit system.

Associate Director
David is Head of Devolved and Local Government Finance. He also works on tax in developing countries as part of our TaxDev centre.

Research Fellow Trinity College Dublin
Barra is a Research Fellow at IFS and Assistant Professor of Economics at Trinity College Dublin.
Journal article details
- DOI
- 10.1016/j.jpubeco.2018.05.010
- Publisher
- Elsevier
- JEL
- H22 H24 H25 J20 J30
- Issue
- Volume 171, Issue March 2019, July 2018, pages 29-50
Suggested citation
S, Adam and D, Phillips and B, Roantree. (2018). '35 years of reforms: A panel analysis of the incidence of, and employee and employer responses to, social security contributions in the UK' 171(March 2019/2018), pp.29–50.
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