NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Wage Subsidies for the Disadvantaged

Lawrence F. Katz

NBER Working Paper No. 5679
Issued in July 1996
NBER Program(s):   LS

Wage subsidies to private employers have often been proposed by economists as a potentially flexible and efficient method to improve the earnings and employment of low-wage workers. This paper lays out the basic economics of wage subsidies; examines issues arising in the design of alternative forms of wage subsidies; and reviews evidence on the effectiveness of recent U.S. wage subsidy programs and demonstration projects. Wage subsidies to employers to hire disadvantaged workers appear to modestly raise the demand for labor for those workers. Stand-alone wage subsidies (or employment tax credits) that are highly targeted on very specific groups (such as welfare recipients) appear to have low utilization rates and may (in some cases) stigmatize the targeted group. But new evidence based on an examination of changes in eligibility rules for the Targeted Jobs Tax Credit, the major U.S. wage subsidy program for the economically disadvantaged from 1979 to 1994, suggests modest positive employment effects of the TJTC on economically disadvantaged young adults. Policies combining wage subsidies with job development, training, and job search assistance efforts appear to have been somewhat successful in improving the employment and earnings of specific targeted disadvantaged groups.

download in pdf format
   (1933 K)

email paper

This paper is available as PDF (1933 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5679

Published: Generating Jobs, Freeman, R. and P. Gottschalk, eds., New York: Russell Sage Foundation, 1998, pp. 21-53.

Users who downloaded this paper also downloaded these:
Levinsohn and Pugatch w17248 Prospective Analysis of a Wage Subsidy for Cape Town Youth
Banerjee, Galiani, Levinsohn, McLaren, and Woolard w13167 Why Has Unemployment Risen in the New South Africa
Neumark and Wascher w12663 Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research
Neumark w16866 Spurring Job Creation in Response to Severe Recessions: Reconsidering Hiring Credits
Neumark w14807 Alternative Labor Market Policies to Increase Economic Self-Sufficiency: Mandating Higher Wages, Subsidizing Employment, and Increasing Productivity
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us