This paper assesses to which extent the policy of reducing employers’ social security contributions has increased market sector employment in 1995-2000. The analytical framework is a macroeconometric labour market model of the market sector that models added value, the employment of labour and capital, the setting of wages and prices, the matching of supply and demand on the labour market, and the dynamics that tie short-run behaviour to the steady state. The real wage cost depends on the wage gap, labour productivity, the replacement rate of unemployment benefits to the take home wage, and tensions on the labour market. The model comes in two versions. The ‘right-to-manage’ version links the wage cost to the unemployment rate; the ‘job-search’ version ties the wage cost to the unemployment-vacancy-ratio.
We obtain similar results with the two model versions: according to the ‘right-to-manage’ model (‘job-search’ model), 12,200 (12,700) and 35,700 (38,700) jobs were created in 1995 and 2000 by the reductions in employers’ social security contributions.