Study: Hiring credits and wage subsidies boost employment and income following recessions
Study: Hiring credits and wage subsidies boost employment and income following recessions
- October 15, 2015
- Findings published by the UCI Center for Economics & Public Policy
The slow recovery following the Great Recession has spurred a growing interest in policies that encourage greater job creation and higher incomes, including hiring credits, higher minimum wages, and a more substantial Earned Income Tax Credit (EITC). In a new study published by the Center for Economics & Public Policy, economics Chancellor’s Professor and center director David Neumark evaluates recent evidence on the effects and tradeoffs of these policies, finding that policymakers can use some of these tools to boost employment and increase income, both in the short run and the longer term.
“Evidence shows that broad-based hiring credits focused on the unemployed or those who have been out of the labor force, as opposed to credits targeting only the disadvantaged, succeeded in boosting employment during the Great Recession period,” says Neumark.
Other types of “deep” hiring credits, in the form of generous wage subsidies, were also effective at motivating employers to hire disadvantaged workers after the Great Recession. On the supply side, he says, the EITC boosts employment in the longer-term.
“The EITC is effective at providing higher income than low-skilled workers earn on their own, although it also lowers wages for employers,” he says.
While minimum wages clearly increase income from work for some employees, most research – including a large body of Neumark’s work – suggest that there are disemployment effects, especially among teens and other very low-skilled workers.
“The predominant conclusion in existing research is that the gains and losses roughly cancel out for poor and low-income families, so that a higher minimum wage does not reduce poverty,” he says. “It seems plausible that policies that assist – rather than interfere with – young, unskilled workers gaining a foothold in the labor market are more likely to have better long-run effects that help workers become economically self-sufficient. This would argue for relying mostly on the EITC to increase incomes from work, and using well-designed wage subsidies or hiring credits to help workers obtain or regain job market opportunities."
The full study is available online.
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