The Limits of Targeted Hiring Subsidies: Evidence from the Work Opportunity Tax Credit

Employer-side wage subsidies are widely used to promote employment among disadvantaged workers.

Employer-side wage subsidies are widely used to promote employment among disadvantaged workers. We study how such subsidies translate into firm hiring behavior using the federal Work Opportunity Tax Credit, which subsidizes up to 40% of first-year wages and covers over two million hires annually. Using linked administrative data from Wisconsin and multiple quasi-experimental designs, we find consistent and precise null effects on hiring, earnings, retention, and related outcomes across designs and firm types. Original data on firm hiring practices suggest two mechanisms that can limit employer-side subsidy efficacy: perceived legal risks discourage eligibility screening and organizational frictions attenuate decision-makers’ responsiveness.