Long-term effects of hiring subsidies for low-educated unemployed youths

• Published in: Journal of public economics Vol. 235; p. 105137
• Main Authors: Albanese, Andrea, Cockx, Bart, Dejemeppe, Muriel
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01-07-2024
• Subjects: Difference-in-differences; Hiring subsidies; Low-educated; Regression discontinuity design; Spillover effects; Youth unemployment; C21; J61; Low-educated; J64; J23; Difference-in-differences; J24; J68; Hiring subsidies; J08; Spillover effects; Regression discontinuity design; Youth unemployment
• ISSN: 0047-2727; 1879-2316
• DOI: 10.1016/j.jpubeco.2024.105137

We use regression discontinuity design and difference-in-differences methods to estimate the impact of a one-time hiring subsidy for low-educated unemployed youths in Belgium during the recovery from the Great Recession. Within a year of unemployment, the subsidy increases job-finding in the private sector by 10 percentage points. Over six years, high school graduates secure 2.8 more quarters of private employment. However, they transition from public jobs and self-employment, resulting in no net increase in overall employment, albeit with better wages. High school dropouts experience no lasting benefits. Additionally, in tight labor markets near Luxembourg’s employment hub, the subsidy results in a complete deadweight loss.
•The empirical literature on hiring subsidies targeted at low-educated youths is scarce.•We evaluate the impact of a generous one-shot hiring subsidy for low-educated unemployed youths during the Great Recession recovery in Belgium.•We implement a regression discontinuity design and difference-in-differences estimators to estimate short- and long-run effects on labor market outcomes.•The subsidy increases job-finding in the private sector by 10 percentage points but long-term effects are present for high school graduates only.•We find evidence that high labor market tightness and substitution of unsubsidized jobs can reduce the effectiveness of the subsidy.