The Efficacy of Hiring Credits in Distressed Areas

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With Michael Suher

Abstract: We analyze the efficacy of hiring tax credits, particularly in distressed labor markets. These types of programs have proven hard to assess as their introduction at the state level tends to be endogenous to local conditions and future prospects. We conduct an empirical study of a hiring tax credit program implemented in North Carolina in the mid 1990s, which has a quasi-experimental design. Specifically, the 100 counties in the state are ranked each year by a formula trying to capture their economic distress level. The generosity of the tax credits jumps discontinuously at various ranking thresholds. We estimate the impact of the credits using difference in differences and regression discontinuity methods. Our estimates show positive impacts on employment levels of around 3% and fairly sizable impacts on unemployment - a $10,000 credit leads to a 0.7 percentage point reduction in the unemployment rate.