The Efficacy of Hiring Credits in Distressed Areas

Listed in Banco de Mexico working papers, 2019


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With Michael Suher

Abstract: We analyze the efficacy of hiring tax credits, particularly in distressed labor markets. These programs have proven hard to assess, as their introduction at the state level tends to be endogenous to local conditions and 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 state’s 100 counties are ranked each year by a formula trying to capture their economic distress level. The generosity of the tax credits has discrete jumps at various ranking thresholds allowing for the use of regression discontinuity methods. Our estimates show sizable and robust effects on unemployment - a $9,000 credit leads to a nearly 0.5 percentage point reduction in the unemployment rate in the counties where the hiring credits were available. The attendant increase in employment levels is around 3%