Wage Effects of Employer-mediated Transfers

The paper presented in this ZEW Research Seminar explores whether the way in which tax credits are disbursed affects the gross wage of workers. The authors 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 wage, 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 approach, the authors 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 gross wages. The authors document larger wage effects in smaller and less unionized firms, and they find no evidence of pay equity concerns (e.g., the effect is mostly driven by new hires rather than by incument workers). Their findings therefore accord with the hypothesis that transfers are not entirely captured dollar for dollar by workers. These results raise questions about the use of employers as intermediaries to disburse transfers; as less salient schemes may lead to rent capture by employers.