Working Paper

Employer Wage Subsidy Caps and Part-Time Work


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;

https://doi.org/10.26509/frbc-wp-202101

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers

Publication Date: 2021-01-06

Number: 2021-01