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.:
- Gerfin, Michael & Lechner, Michael & Steiger, Heidi, 2005.
"Does subsidised temporary employment get the unemployed back to work? Aneconometric analysis of two different schemes,"
Elsevier, vol. 12(6), pages 807-835, December.
- 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.
- 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).
- 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.
- 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.
- 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.
- 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.
- 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).
- Takis Venetoklis & Aki Kangasharju, 2003. "Do Wage-subsidies Increase Employment in Firms?," Discussion Papers 304, 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.
- Aki Kangasharju, 2005. "Do Wages Subsidies Increase Employment in Subsidised Firms?," Discussion Papers 378, Government Institute for Economic Research Finland (VATT).
- 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.
- Betcherman, Gordon & Daysal, N. Meltem & Pagés, Carmen, 2010. "Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey," Labour Economics, 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).
- Lawrence F. Katz, 1996. "Wage Subsidies for the Disadvantaged," NBER Working Papers 5679, National Bureau of Economic Research, Inc.
- 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;International Institute of Public Finance, vol. 6(3), pages 339-360, August.
- Bell, 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.
- Riccardo Welters & Joan Muysken, 2006. "Employer search and employment subsidies," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1435-1448.
- 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. Full references (including those not matched with items on IDEAS)
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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.