Do wage subsidies affect the subsequent employment stability of permanent workers?: the case of Spain

This article studies how job creation subsidies designed for several Spanish regional governments to foster the creation of new permanent contracts during the period 1997-2004 might affect the subsequent employment stability of the eligible workers. We use a triple difference approach that focuses on regional and temporal variability in individual eligibility conditions of these subsidies to obtain the causal effect of the policy. Our data comes from the Muestra Continua de Vidas Laborales (MCVL) and from a database that contains information on the policy analyzed. Our main result is that workers who are eligible for these subsidies face a higher probability of exiting from their current permanent contract than those who do not. These effects vary by age and gender, as well as by contract duration and contract type. This result is particularly relevant for male workers whose contracts also benefited with nationally subsidized payroll deductions and for women with such deductions but only during their first year of employment. During that initial first-year period, the exit rate among eligible workers in our sample increased by 9%, 21% and 16% for younger, middle-aged and older female workers, respectively, and by about 13% and 25% for younger and older male workers, respectively.