Employer Wage Subsidy Caps and Part-Time Work

49 Pages Posted: 12 Jan 2021

See all articles by Joel Elvery

Joel Elvery

Federal Reserve Banks - Federal Reserve Bank of Cleveland

C. Lockwood Reynolds

Kent State University

Shawn M. Rohlin

Rochester Institute of Technology (RIT) - Department of Economics

Date Written: January 06, 2021

Abstract

Hiring credits and employer wage subsidies are tools that policymakers have available to attempt to improve labor market conditions for workers. This study explores how capped-wage subsidies affect firms’ labor market decisions, in particular, their reliance on part-time and low-skill workers. We focus on the federal Empowerment Zone program, which offers firms in targeted areas a 20 percent wage subsidy (capped at $3,000 per year) for each employee who also resides in the Empowerment Zone. Results using different methods of identification suggest that firms respond to capped-wage subsidies by expanding their use of part-time workers, particularly where the subsidy cap is likely to bind. We also provide evidence of a shift toward lower-skill workers.

Keywords: wage subsidies, hiring credits, part-time work

JEL Classification: H25, J23, J48

Suggested Citation

Elvery, Joel and Reynolds, C. Lockwood and Rohlin, Shawn M., Employer Wage Subsidy Caps and Part-Time Work (January 06, 2021). FRB of Cleveland Working Paper No. 21-01, Available at SSRN: https://ssrn.com/abstract=3764035 or http://dx.doi.org/10.2139/ssrn.3764035

Joel Elvery (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

C. Lockwood Reynolds

Kent State University ( email )

Kent, OH 44242
United States

Shawn M. Rohlin

Rochester Institute of Technology (RIT) - Department of Economics ( email )

92 Lomb Memorial Drive
Rochester, NY 14623-5604
United States

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