Using a matching and a difference in differences approach we analyzed the impact
of a payroll costs reduction implemented through a tax reform in Colombia
on worked hours and hourly income. Existing studies have found mixed results,
while increases in wages are commonly found, the results for employment and
worked hours effects are a source of debate with no consensus on sight.
However, in line with earlier revisions of literature, we concluded that the effect
of payroll costs reductions is positive and significant on both, worked hours and
income. In this paper, using socioeconomic data from Colombia we found that
those individuals affected by a payroll cost reduction between 2012-2014 exhibited
significant increases in both hours and income compared to similar individuals
unaffected by this framework.