Employer Wage Subsidy Caps and Part-Time Work
49 Pages Posted: 12 Jan 2021
Date Written: January 06, 2021
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: Suggested Citation