Can Taxes Mitigate the Decline in Employment under Macroeconomic Uncertainty?

초록

This study investigates the effectiveness of employment tax credits as a business adjustment mechanism during periods of high macroeconomic uncertainty. While existing literature consistently finds employment tax credits to be effective in promoting employment, their interaction with macroeconomic uncertainty remains underexplored. We address this gap by analyzing data from 10,273 non-financial Korean listed companies that reported earnings between 2010 and 2022. The Economic Policy Uncertainty Index (EPUI) by Baker et al. (2016) serves as our measure of macroeconomic uncertainty. Our empirical results reveal that higher macroeconomic uncertainty is associated with lower total and full-time employment, and higher part-time employment. This suggests that firms respond to uncertainty by substituting full-time positions with part-time roles, likely to reduce potential future costs. Importantly, we find that the negative relationship between macroeconomic uncertainty and employment levels is moderated by the expansion of employment tax credits. Specifically, in years when these tax credits were enhanced, the adverse impact of macroeconomic uncertainty on total and full-time employment is significantly weakened. These findings indicate that employment tax credits not only incentivize employment under normal conditions but also serve as an effective policy tool to buffer employment losses in uncertain economic environments. Our study contributes to the literature by highlighting the role of tax incentives as a stabilizing mechanism during times of heightened economic uncertainty. © 2025, Korean Accounting Association. All rights reserved.

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