Employment Tax Credit Programs: The Effects of Socioeconomic Targeting Provisions

Wage cost subsidies, such as the employment tax credit, are appealing to labor economists concerned with the effects of minimum wage laws and other barriers to downward wage-rate flexibility in low-skill labor markets. In principle, any disemployment effects of a minimum wage law can be offset by a...

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Bibliographic Details
Published in:The Journal of human resources 1982-07, Vol.17 (3), p.449-459
Main Author: O'Neill, Dave M.
Format: Article
Language:English
Subjects:
Adult vocational education
Business structures
Communications
Employment
Employment Level
Human resources
Polls & surveys
Programs
Socioeconomic factors
Socioeconomics
Subsidies
Tax credits
Tax revenues
Tax subsidies
Wages
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Summary:Wage cost subsidies, such as the employment tax credit, are appealing to labor economists concerned with the effects of minimum wage laws and other barriers to downward wage-rate flexibility in low-skill labor markets. In principle, any disemployment effects of a minimum wage law can be offset by a wage-cost subsidy of the proper amount. This assumes that entrepreneurs can use the subsidy without significantly changing their hiring and personnel practices. This overlooks a major feature of the 2 counter-structural employment tax credit programs that have been tried - that these programs do not provide a general subsidy that an employer can apply to any worker or even to any low-skill workers hired. Instead, these programs are highly targeted on very specific socioeconomic groups. An attempt is made to show that this narrow socioeconomic targeting approach makes it highly unlikely that the subsidy program will be able to achieve the desired effect of significantly increasing the employment level of the target group. A survey revealed that firms have strong preferences for less targeted programs.
ISSN:0022-166X
1548-8004
DOI:10.2307/145591