The Efficacy of Hiring Credits in Distressed Areas

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 employment - a $9,000 credit leads to a 4% increase in employment or 1.2 percentage point increase in the employment to population ratio in the counties where the hiring credits were available. The attendant reduction in the unemployment rate is around 0.3% percentage points.