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

Manisha Jain, Corina Mommaerts and Jeffrey Weaver

No 35229, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: H25 J38 M51 (search for similar items in EconPapers)
Date: 2026-05
Note: LS PE
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