Why Don't Eligible Firms Claim Hiring Subsidies? The Role of Job Duration
19 Pages Posted: 29 Jun 2011
Date Written: July 2011
Only a small fraction of firms that hire disadvantaged workers claim the federal subsidies for which they qualify, namely, the Work Opportunity Tax Credit (WOTC) and Welfare‐to‐Work Tax Credit (WtW). Subsidy benefits depend partially on job duration, with higher subsidy rates above certain job‐duration thresholds. I estimate the relationship between a firm's WOTC/WtW participation and its eligible workers' job durations. Using unique Wisconsin administrative data, I find that workers' subsidy rates (determined by hours worked) have the expected relationship to participation: Firms with a larger fraction of workers exceeding the programs' job‐duration thresholds are more likely to claim the WOTC/WtW. I also find no evidence that firms systematically modify the job duration of their workers to maximize subsidy payments.
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