Do wage subsidies for disabled workers result in deadweight loss? – evidence from the Danish Flexjob scheme
We evaluate the effects of wage subsidy programs for the disabled, in particular, their potential for welfare-loss reduction vs. deadweight loss creation. We do this in the context of the Danish Flexjob scheme, a large, nation-wide scheme that was implemented in 1998 and targeted towards improving the employment prospects of the long-term disabled with partial working capacity. We analyse the hiring response to a shock in the wage reimbursement amount to certain firms using the program. Firms received a salary reimbursement for both current and new employees granted a Flexjob subsidy. In 2002, the reimbursement to government firms was lowered while the reimbursement to municipal and regional employers remained the same. We combine the reform with unique data on whether or not a new Flexjob hiree was previously employed in a regular (unsubsidized) job at the same firm. Thus, we can investigate whether the changes in the reimbursement amount to governmental units affected the share of Flexjobs within such firms that were allocated to retained employees versus to new hires. The findings show substantial substitution between “insiders” and “outsiders” after the reform. After the reform, governmental firms create fewer Flexjobs. At the same time, the composition of Flexjob hires within such firms changes substantially: the share of new Flexjobs allocated to retained employees is twice as large as it would have been in absence of the reform. The finding on deadweight loss seems to run counter to the theoretical prediction. A possible alternative mechanism for the finding could be that when subsidies are reduced and worker productivity is not known with certainty, employers have an economic incentive to fill Flexjob positions from inside the firm.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barron, John M & Black, Dan A & Loewenstein, Mark A, 1987. "Employer Size: The Implications for Search, Training, Capital Investment, Starting Wages, and Wage Growth," Journal of Labor Economics, University of Chicago Press, vol. 5(1), pages 76-89, January.
- Brian Bell & Richard Blundell & John Van Reenen, 1999.
"Getting the unemployed back to work: the role of targeted wage subsidies,"
IFS Working Papers
W99/12, Institute for Fiscal Studies.
- Brian Bell & Richard Blundell & John Reenen, 1999. "Getting the Unemployed Back to Work: The Role of Targeted Wage Subsidies," International Tax and Public Finance, Springer, vol. 6(3), pages 339-360, August.
- Aki Kangasharju, 2005.
"Do Wages Subsidies Increase Employment in Subsidised Firms?,"
378, Government Institute for Economic Research Finland (VATT).
- Aki Kangasharju, 2007. "Do Wage Subsidies Increase Employment in Subsidized Firms?," Economica, London School of Economics and Political Science, vol. 74(293), pages 51-67, 02.
- Gerfin, Michael & Lechner, Michael & Steiger, Heidi, 2002.
"Does Subsidised Temporary Employment Get the Unemployed Back to Work? An Econometric Analysis of Two Different Schemes,"
IZA Discussion Papers
606, Institute for the Study of Labor (IZA).
- Gerfin, Michael & Lechner, Michael & Steiger, Heidi, 2005. "Does subsidised temporary employment get the unemployed back to work? Aneconometric analysis of two different schemes," Labour Economics, Elsevier, vol. 12(6), pages 807-835, December.
- Gerfin, Michael & Lechner, Michael & Steiger, Heidi, 2002. "Does subsidised temporary employment get the unemployed back to work? An econometric analysis of two different schemes," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 A2-2, International Conferences on Panel Data.
- Michael Gerfin & Michael Lechner & Heidi Steiger, 2003. "Does subsidised temporary employment get the unemployed back to work? An econometric analysis of two different schemes," Diskussionsschriften dp0303, Universitaet Bern, Departement Volkswirtschaft.
- Gerfin, Michael & Lechner, Michael & Stieger, Heidi, 2002. "Does Subsidized Temporary Employment Get the Unemployed Back to Work? An Econometric Analysis of Two Different Schemes," CEPR Discussion Papers 3669, C.E.P.R. Discussion Papers.
- Michael Gerfin & Michael Lechner & Heidi Steiger, 2002. "Does subsidised temporary employment get the unemployed back to work? An econometric analysis of two different schemes," University of St. Gallen Department of Economics working paper series 2002 2002-22, Department of Economics, University of St. Gallen.
- Riccardo Welters & Joan Muysken, 2006. "Employer search and employment subsidies," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1435-1448.
- Lawrence F. Katz, 1996. "Wage Subsidies for the Disadvantaged," NBER Working Papers 5679, National Bureau of Economic Research, Inc.
- Betcherman, Gordon & Daysal, N. Meltem & Pagés, Carmen, 2010.
"Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey,"
Elsevier, vol. 17(4), pages 710-722, August.
- Betcherman, Gordon & Daysal, N. Meltem & Pagés, Carmen, 2008. "Do Employment Subsidies Work? Evidence from Regionally Targeted Subsidies in Turkey," IZA Discussion Papers 3508, Institute for the Study of Labor (IZA).
- Blundell, Richard William & Costa Dias, Monica & Meghir, Costas & Van Reenen, John, 2003.
"Evaluating the Employment Impact of a Mandatory Job Search Programme,"
CEPR Discussion Papers
3786, C.E.P.R. Discussion Papers.
- Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2004. "Evaluating the Employment Impact of a Mandatory Job Search Program," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 569-606, 06.
- Takis Venetoklis & Aki Kangasharju, 2003. "Do Wage-subsidies Increase Employment in Firms?," Discussion Papers 304, Government Institute for Economic Research Finland (VATT).
- Humer, Brigitte & Wuellrich, Jean-Philippe & Zweimüller, Josef, 2007. "Integrating Severely Disabled Individuals into the Labour Market: The Austrian Case," IZA Discussion Papers 2649, Institute for the Study of Labor (IZA).
- David H. Autor & Mark G. Duggan, 2007. "Distinguishing Income from Substitution Effects in Disability Insurance," American Economic Review, American Economic Association, vol. 97(2), pages 119-124, May.
When requesting a correction, please mention this item's handle: RePEc:aah:aarhec:2013-24. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.