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.
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Provider: Federal Reserve Bank of Cleveland
Part of Series: Working Papers
Publication Date: 2021-01-06