The Employment Effects of State Hiring Credits

Abstract

State and federal policymakers grappling with the aftermath of the Great Recession sought ways to spur job creation, in many cases adopting hiring credits to encourage employers to create new jobs. Virtually no evidence is available, however, on the effects of these kinds of counter-recessionary hiring credits, with the only evidence coming from much earlier studies of the federal New Jobs Tax Credit in the 1970s. This article provides evidence on the effects of state hiring credits on job growth. Some specific types of hiring credits—including those targeting the unemployed, those that allow states to recapture credits when job creation goals are not met, and refundable hiring credits—appear to have succeeded in boosting job growth, particularly during the Great Recession period and perhaps also during recessions in general. At the same time, some evidence suggests that these credits can generate much more hiring than net employment growth, consistent with the credits encouraging churning of employees that raises the cost of producing jobs through hiring credits.