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The Limits of Targeted Hiring Subsidies: Evidence from the Work Opportunity Tax Credit

Author

Listed:
  • Manisha Jain
  • Corina Mommaerts
  • Jeffrey Weaver

Abstract

Employer-side wage subsidies are widely used to promote employment among disadvantaged workers. We study how such subsidies translate into firm hiring behavior using the federal Work Opportunity Tax Credit, which subsidizes up to 40% of first-year wages and covers over two million hires annually. Using linked administrative data from Wisconsin and multiple quasi-experimental designs, we find consistent and precise null effects on hiring, earnings, retention, and related outcomes across designs and firm types. Original data on firm hiring practices suggest two mechanisms that can limit employer-side subsidy efficacy: perceived legal risks discourage eligibility screening and organizational frictions attenuate decision-makers’ responsiveness.

Suggested Citation

  • Manisha Jain & Corina Mommaerts & Jeffrey Weaver, 2026. "The Limits of Targeted Hiring Subsidies: Evidence from the Work Opportunity Tax Credit," NBER Working Papers 35229, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35229
    Note: LS PE
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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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