Do Hiring Subsidies Reduce Unemployment Among the Elderly? Evidence from Two Natural Experiments

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp07001.pdf Nontechnical SummaryOlder workers frequently have difficulties to find new work after unemployment. This study is part of the evaluation of the "Hartz laws" commissioned by the German Federal Ministry of Labor and Economic Affairs. We examine whether eligibility to the program increases the chances to make the transition from unemployment to employment. The effect of eligibility on the transition rate into employment has been studied less frequently than the effect of actual subsidy receipt on integration into unsubsidized employment. However, the former effect is a precondition for the latter: if the availability of subsidies does not change hiring behavior, there is no reason why subsidies should affect individual transitions into unsubsidized employment.To estimate the effect of eligibility, we use two changes in the legal rules. Estimates from duration analysis of the transition rate show that, for the population as a whole, the probability of leaving unemployment and entering employment is unaffected by the availability of hiring subsidies. For women in East Germany, however, extending eligibility led to an increase in exit from unemployment by six percentage points, while the ending of the specific subsidy program for older workers lowered their employment chances by about twopercentage points. Further analysis shows that the ineffectiveness for most population groups is due to deadweight effects: an increase in subsidized hirings is accompanied by a decline in unsubsidized new employment. Do Hiring Subsidies Abstract:We estimate the effects of hiring subsidies for older workers on transitions from unemployment to employment in Germany. Using a natural experiment, our first set of estimates is based on a legal change extending the group of eligible unemployed persons. A subsequent legal change in the opposite direction is used to validate these results. Our data cover the population of unemployed jobseekers in Germany and was specifically made available for our purposes from administrative data. Consistent support for an employment effect of hiring subsidies can only be found for women in East Germany. Concerning other population groups, firms´ hiring behavior is hardly influenced by the program and hiring subsidies mainly lead to deadweight effects. JEL-Codes: J 64, H 24, C 31

The effectiveness of targeted wage subsidies for hard-to-place workers

“…Few studies are based on social experiments, where treatment is allocated randomly among the unemployed (Burtless 1985), or on natural experiments, which utilize changes in legislation and apply difference-indifferences estimators to the treated group and a similar group that is unaffected by the changes (Boockmann et al 2007). An early social experiment of the effectiveness of targeted wage subsidies dates back to Burtless (1985), who investigated a programme that was conducted in Ohio during the years 1980 to 1981.…”

“…For Germany, Boockmann et al (2007) investigated changes in the legislation regarding the EGZ for workers of 50 or older. The regular subsidy used to amount to 50 percent of the wage rate, paid in monthly rates for up to two years.…”

Labor supply effects of a subsidized old-age part-time scheme in Austria

“…Bonin et al 2003;Lutz 2001), hiring subsidies (e.g. Boockmann et al 2011) or a layoff tax (e.g. Schnalzenberger andWinterEbmer 2009 or Behagel et al 2008), which will not be discussed in detail here.…”

Eingliederungszuschüsse und Entlohnung: empirische Evidenz auf Basis von Individualdaten

“…They found that the program increased welfare participation in the first year after welfare entry and lowered it over the following five years. Boockmann et al (2007) investigated the effects of changes in the legislation regarding German wage subsidies and concluded that increases in subsidized employment were mostly absorbed by deadweight losses.…”