Hiring Subsidy Research Articles

Monopsony and rent sharing: Evidence from Italian hiring subsidies

We estimate that hiring subsidies reduce concentration in labor markets where both small and large firms coexist. Wages increase only when HSs are in place and firms keep 96% of the subsidy amount, indicating that even small firms have relevant wage-setting power.

Monopsony and Rent Sharing: Evidence from Italian Hiring Subsidies

Monopsony and Rent Sharing: Evidence from Italian Hiring Subsidies

A job trial subsidy for youth: Cheap labour or a screening device?

AbstractThis paper evaluates a 90‐day hiring subsidy designed for young jobseekers aged below 25, introduced in Hungary in 2015 as part of the Youth Guarantee programme. The subsidy covers the total wage cost with no obligation to retain the new hire when the subsidy expires. The analysis is based on linked administrative data on registered unemployment, cognitive skills measured around age 15, healthcare, and social security records. The causal impact of the subsidy on subsequent employment is identified in comparison to participants of a uniquely large public works programme, using propensity score matching with exceptionally rich controls. The estimates indicate significant positive effects: participants spent 14–20 days more in employment within 6 months after the programme ended in the whole sample. The impact is weaker on the 12‐month horizon. We find that the subsidy works well as a screening device: the programme has the highest impact on youths who have very low levels of schooling (8 years of primary school or less), but scored high on cognitive skills tests. One potential explanation is that employers tend to retain those with better cognitive skills, irrespective of their formal qualifications. We also find some indication that the subsidy is (mis)used by some employers to hire short term, seasonal workers.

Making the Elite: Top Jobs, Disparities, and Solutions

How do socioeconomically unequal screening practices impact access to elite firms and what policies might reduce inequality? Using personnel data from elite U.S. and European multinational corporations recruiting from an elite Indian college, I show that caste disparities in hiring do not arise in many job search stages, including: applications, application reading, written aptitude tests, large group debates that assess socio-emotional skills, and job choices. Rather, disparities arise in the final round, comprising non-technical personal interviews that screen on family background, neighborhood, and "cultural fit." These characteristics are plausibly weakly correlated with productivity (at the interview round) but strongly correlated with caste. Employer willingness to pay for an advantaged caste is as large as that for a full standard deviation increase in college GPA. A hiring subsidy that eliminates the caste penalty would be more cost-effective in diversifying elite hiring than equalizing the caste distribution of pre-college test scores or enforcing hiring quotas.

Making the Elite: Top Jobs, Disparities, and Solutions

How do socioeconomically unequal screening practices impact access to elite firms and what policies might reduce inequality? Using personnel data from elite U.S. and European multinational corporations recruiting from an elite Indian college, I show that caste disparities in hiring do not arise in many job search stages, including: applications, application reading, written aptitude tests, large group debates that assess socio-emotional skills, and job choices. Rather, disparities arise in the final round, comprising non-technical personal interviews that screen on family background, neighborhood, and "cultural fit." These characteristics are plausibly weakly correlated with productivity (at the interview round) but strongly correlated with caste. Employer willingness to pay for an advantaged caste is as large as that for a full standard deviation increase in college GPA. A hiring subsidy that eliminates the caste penalty would be more cost-effective in diversifying elite hiring than equalizing the caste distribution of pre-college test scores or enforcing hiring quotas.

How effective are hiring subsidies in reducing long-term unemployment among prime-aged jobseekers? Evidence from Belgium

Abstract Hiring subsidies are widely used to create (stable) employment for the long-term unemployed. This paper exploits the abolition of a hiring subsidy targeted at long-term unemployed jobseekers older than 45 years of age in Belgium to evaluate its effectiveness in the short and medium run. Based on a triple-difference methodology, the hiring subsidy is shown to increase the job-finding rate by 13% without any evidence of spillover effects. This effect is driven by a positive effect on individuals with at least a bachelor's degree. However, the hiring subsidy mainly creates temporary short-lived employment: eligible jobseekers are not more likely to find employment that lasts at least 12 consecutive months compared with ineligible jobseekers.

Optimal Regional Labor Market Policies

We document large and persistent spatial dispersion in unemployment rates, vacancies, labor market tightness, labor market flows, and wages for Germany on a granular regional level. We show that in the 1990s differences in inflows from employment to unemployment were the key driver of regional dispersion in unemployment rates while in the 2000s outflows became more important. To account for the documented regional dispersion we develop a spatial search and matching model with risk-averse agents, endogenous separations and unobservable search effort that leads to moral hazard and quantify the relative importance of 4 potential structural driving forces: dispersion in productivity, in the bargaining strength of workers, in idiosyncratic risk components and in regional matching efficiency. Based on region-specific estimates of these factors we then study the resulting policy trade-off between insurance, regional redistribution and efficiency. We design (optimal) region-specific labor market policies that can be implemented using hiring subsidies, layoff taxes, unemployment insurance benefits and transfers financed by social insurance contributions. We find that a move towards an optimal tax system that explicitly conditions on regional characteristics could lead to sizable welfare and employment gains.

A tale of comprehensive labor market reforms: Evidence from the Italian jobs act

The Italian Jobs Act introduced a subsidy for new hirings as well as a new open ended labor contract based on graded security, with severance payments increasing with tenure, while phasing out the compulsory reinstatement of workers in the case of unfair dismissals applied until March 2015. Simple models of job creation and destruction predict that hiring subsidies and lower firing costs unambiguously increase hirings. Moreover, lower firing costs associated with graded security should also increase layoffs. These effects need not to be uniform across the size distribution of firms, especially when firms of different size are treated differently by the policy changes as in the case of the Jobs Act. On the one hand, the hiring subsidy was proportional to wages, but had a cap, hence was more generous for small firms- typically paying lower wages than large firms – making them particularly responsive along the job creation margin. On the other hand, the reduction in firing costs applied mainly to large firms concentrating on them the adjustment along the job destruction margin. To investigate empirically the effects of the Italian Jobs Act, we draw on a unique dataset covering the universe of private firms in Italy having at least once 10–20 employees in the two years prior to the reform of January 2015. We find evidence of a substantial increase in open ended hirings, and in the transformation of fixed-term into open ended contracts, in the aftermath of the Jobs Act. The effects of the Jobs Act on firings- conversely- are much smaller, and are concentrated on large firms, while small firms react more intensively- creating new open ended contracts- to the hiring subsidy.

Italy's 'Employment-Rich' Recovery: A Closer Look

We look at changes in employment in Italy after the double-dip recession. We show that since the end of 2014 the responsiveness to GDP of total employment and its payroll components (permanent and fixed-term) has risen significantly; the increase has been broad-based across sectors and it would have been larger if demographic factors had been netted out. These developments are not common to France, Spain and Germany. Therefore, we turn to Italy-specific determinants related to the recent labour market reforms. Using cell-level data drawn from the Comunicazioni Obbligatorie of the Veneto region, we find that gross permanent hires and conversions of fixed-term positions have temporarily, but significantly, benefited from the 2015-2016 hiring subsidies across all types of firms and, more smoothly, from the new regulation of dismissals introduced by the 2015 Jobs Act for medium-large firms. This latter result is clear in 2017, in the absence of subsidies to permanent hiring. Fixed-term employment has increased, likely favoured by the 2014 Poletti Decree, more strongly so when permanent hiring subsidies were lifted or weakened and among smaller firms.

Firing costs and firm hiring: evidence from an Italian reform

Aimed at reducing labour market dualism and favouring job creation, in 2015 the Italian government issued new regulations lowering firing costs for newly signed open-ended job contracts. To foster the adoption of the new rules the government introduced also a generous subsidy for firms hiring workers with an open-ended contract. Using microdata on hiring and firing for one Italian region, Veneto, we exploit some differences in the design of the two policies to separately identify the effects of new firing costs on firm hiring. We find that around 8% of gross permanent hires occurred because of the reduction of firing costs (in addition to the positive and large effect of the hiring subsidies). The reform of firing costs contributed also to increase the monthly rate of conversion of fixed-term jobs into permanent positions. As suggested by the theory, we also find that the new firing rules made firms slightly less reluctant to offer permanent job positions to yet untested workers.

Hiring Incentives And/Or Firing Cost Reduction? Evaluating the Impact of the 2015 Policies on the Italian Labour Market

In 2015 Italy adopted two different policies aimed at reducing labour market dualism and fostering employment: a generous permanent hiring subsidy and new regulations lowering firing costs and making them less uncertain. Using microdata for Veneto and exploiting some differences in the design of the policies, we evaluate the impact of each measure. Both contributed to double the monthly rate of conversion of fixed-term jobs into permanent positions. Moreover, around 40 per cent of new total gross hires with permanent job contracts occurred because of the incentives, whereas 5 per cent can be attributed to the new firing regulations. The new firing rules also made firms less reluctant to offer permanent job positions to yet untested workers. The possibility of benefitting from the incentives in case of a conversion also boosted temporary hiring, as it allowed firms to test for the quality of a job match.

Firm Responses to Employment Subsidies: A Regression Discontinuity Approach to the 2012 Spanish Labour Market Reform

This study focuses on the employment effect of a hiring subsidy available to firms with less than 50 employees, granted in the context of the 2012 Spanish labour market reform. Exploiting the arbitrary firm size threshold using regression discontinuity design, estimates show on average 2 percentage points higher employment growth for firms that became eligible for the scheme. However, tests and complementary regressions suggest that the higher employment growth for smaller firms in 2013 is driven by a 2010 reform, which imposes more stringent reporting requirements on larger firms. Accounting for this using difference-in-discontinuity regressions, we fail to find any significant effect of the subsidy on increasing employment of eligible firms. While our study suggests several pitfalls arising from size-contingent regulations, more data are needed to test for benecial long-term effects from the hiring subsidy in addressing duality of the Spanish labour market. JEL Classification: C21, D22, E24, H25

Firm financed training and pareto improving firing taxes

This paper analyses how the under-investment in firm financed training caused by hold up can justify the introduction of firing taxes in a laissez-faire economy with search frictions and risk neutral agents. In particular, we show two main results. First, the introduction of a firing tax for newly hired workers combined with hiring subsidies, always acts as a Pareto improving policy. Second, with no hiring subsidies, the introduction of a firing tax for the newly hired always increase the welfare of employed while its impact on the welfare of unemployed depends on the returns to training. Hence, policy implications are derived.

Optimal labor market policy with search frictions and risk-averse workers

This paper characterizes the optimal policy within a dynamic search model of the labor market with risk-averse workers. In a first-best allocation of resources, unemployment benefits should provide perfect insurance against the unemployment risk, layoff taxes are necessary to induce employers to internalize the social cost of dismissing an employee but should not be too high in order to allow a desirable reallocation of workers from low to high productivity jobs, hiring subsidies are needed to partially offset the adverse impact of layoff taxes on job creation, and both unemployment benefits and hiring subsidies should be almost exclusively financed from layoff taxes. I obtain an optimal rate of unemployment which is, in general, different from the output maximizing rate of unemployment. When workers have some bargaining power, which prevents the provision of full insurance, it is optimal to reduce the rate of job creation below the output maximizing level in order to lower wages and increase the level of unemployment benefits. Thus, layoff taxes should typically exceed hiring subsidies which generates enough surplus to finance at least some of the unemployment benefits. The inclusion of moral hazard does not change this conclusion, unless workers have low bargaining power.

Fiscal stimuli in the form of job creation subsidies

This paper examines the effects of fiscal stimuli in the form of job creation subsidies in a DSGE model with search friction and endogenous job separation. We consider two types of job creation subsidies: a subsidy for the cost of posting vacancies and a hiring subsidy. This paper finds that the effects of job creation subsides on unemployment differ between models with and without endogenous job separation. While a positive job creation subsidy shock lowers unemployment in a model without endogenous job separation, it increases unemployment in a model with endogenous job separation. We also find that while qualitatively the effects of a vacancy cost subsidy on the economy are similar to those of a hiring subsidy, quantitatively they are different.

Eliminating Persistent Statistical Discrimination: An Analysis of Several Policy Options

Abstract I consider a model of endogenous human capital formation with competitively determined wages in a dynamic setting. In the presence of two distinguishable, but ex ante identical groups of workers, discrimination will be persistent in equilibrium. Using this framework, I then consider the effectiveness of three government policies designed to eliminate this discrimination. I determine the paths that workers will take after a policy is instated as well as how long a policy needs to be in place to guarantee the successful elimination of discrimination. The policies I consider are (1) a hiring subsidy that promotes the hiring of disadvantaged workers to the better job, (2) an investment voucher that defrays the monetary cost of human capital investment, and (3) an equal treatment policy under which firms are required to treat workers equally across groups. I find that all three policies have the potential to eliminate persistent discrimination if certain conditions are met. In a general equilibrium setting, I also address the welfare effects of the three policies for a parametric example.

Evaluating Labor Market Targeted Fiscal Policies in High Unemployment EZ Countries

We develop a monetary open economy model characterized by a highly detailed labor market structure and fiscal sector. By introducing a distinction between the wage negotiated by newly hired workers and incumbents, we evaluate the efficacy of two labor market targeted fiscal policies, a hiring subsidy and a wage subsidy for new hires of labor, and compare them with that implied by standard fiscal instruments. The model is estimated with Bayesian techniques using data for high unemployment countries of the EZ periphery (Greece, Ireland, Italy, Portugal and Spain). From posterior simulations we show that, except Greece, the labor market policies are not superior to standard fiscal expansions in stimulating economic activity, and the effects on employment are clearly superior only in the long term and at the Greece and Ireland's model parameter estimates. The consideration of a liquidity trap environment reinforces these results.

Social welfare and wage inequality in search equilibrium with personal contacts

This paper incorporates job search through personal contacts into an equilibrium matching model with a segregated labor market. Firms can post wage offers in the regular job market, alternatively they can save on advertising costs and rely on word-of-mouth communication. Wages are then negotiated ex-post between the firm and the applicant, so the model can generate wage premiums or penalties depending on the parameter of bargaining power. Moreover, this paper shows that the traditional Hosios (1990) condition continues to hold in an economy with family contacts but it fails to provide efficiency in the economy with weak ties. There are two reasons for the inefficiency. First, workers bargaining over wages do not internalize the positive external effect on their contacts, originating from a higher probability of finding a job. This network externality puts an upward pressure on wages so the market tightness in the referral market is distorted downwards. Second, weak ties do not act in full interest of the unemployed worker so their search intensity is inefficiently low. Finally, this paper shows that a combination of a hiring subsidy and a referral bonus can decentralize the efficient allocation in the economy with weak ties.

Place Based Policies with Unemployment

Many countries have policies aimed at creating jobs in depressed areas with high unemployment rates. In standard spatial equilibrium models with perfectly competitive labor and land markets, local job creation efforts are distortionary. We develop a stylized model of frictional local labor markets with the goal of studying the efficiency of unemployment differences across areas and the potential for place based policies to correct local market failures. Our model builds on the heavily studied Diamond - Mortensen - Pissarides framework, adapted to a local labor market setting with a competitive housing market. The result is a simple search analogue of the classic Roback (1982) model that provides a tractable environment for studying the effects of local job creation efforts. In the model, workers are perfectly mobile and the productivity of worker-firm matches may vary across metropolitan areas. In equilibrium, higher local productivity results in higher nominal wages, higher housing costs, and lower unemployment rates. Although workers can move freely to arbitrage away differences in expected utility across metropolitan areas, equilibrium unemployment rates are not equalized across space. We find that if hiring costs are excessive, firms may post too few vacancies. This problem may be offset via local hiring subsidies of the sort found in many place based policies. The optimal hiring subsidy is city specific in the sense that it depends upon the local productivity level.

Eingliederungsgutscheine: Zwischen Empowerment und Stigmatisierung / Re-employment bonuses as vouchers: Between empowerment and stigmatization

Abstract Der Eingliederungsgutschein ist ein neues Instrument in der deutschen Arbeitsmarktpolitik gewesen. Ältere Arbeitsuchende, die die Voraussetzungen erfüllten, erhielten eine Zusage über eine Lohnsubvention von bis zu 50 Prozent über 12 Monate, die Arbeitgeber bei der Einstellung einlösen konnten. Gegenüber den herkömmlichen Eingliederungszuschüssen versprach die Ausgestaltung als Gutschein spezifische Wirkungen. Die Inanspruchnahme dieses Instruments blieb aber weit unterhalb der Erwartungen. Ein wesentlicher Grund ist, dass eine stigmatisierende Wirkung des Gutscheins nicht ausgeschlossen werden kann und den Akteuren - Vermittlungsfachkräften, Arbeitslosen und betrieblichen Personalverantwortlichen - dies auch bewusst gewesen ist.