Long-Term Effects of Hiring Subsidies for Unemployed Youths - Beware of Spillovers

Abstract

We use (donut) regression discontinuity design and difference-in-differences estimators
to estimate the impact of a one-shot hiring subsidy targeted at low-educated unemployed
youths during the Great Recession recovery in Belgium. The subsidy increases job-finding
in the private sector by 10 percentage points within one year of unemployment. Six years
later, high school graduates accumulated 2.8 quarters more private employment. However,
because they substitute private for public and self-employment, overall employment does
not increase but is still better paid. For high school dropouts, no persistent gains emerge.
Moreover, the neighboring attraction pole of Luxembourg induces a complete deadweight
near the border.

Keywords: Hiring subsidies, youth unemployment, cross-border employment, regression discontinuity design, difference-in-differences, spillover effects, displacement

JEL Classification: C32, J08, J23, J24, J64, J68, J61