Citation
Hamersma, S., & Heinrich, C. (2008). Temporary help service firms’ use of employer tax credits: Implications for disadvantaged workers’ labor market outcomes. Southern Economic Journal, 74(4), 1123-1148.
Highlights
- The study’s objective was to examine the effect of subsidies paid to employers for hiring disadvantaged workers—specifically, the Work Opportunity Tax Credit and Welfare-to-Work Tax Credit—on workers’ earnings and employment. It also examined the interaction of the employment subsidies and being employed through a temporary help service.
- The study compared total earnings and total quarters employed in the first and second years after starting a job for certified workers—those workers for whom employers could receive subsidies—with those of eligible but uncertified workers. In addition, the study compared outcomes of certified workers employed through temporary help services with those of certified workers hired directly by an employer. The authors matched the groups being compared on observable characteristics using administrative data.
- The study found no statistically significant relationships between employer subsidies and workers’ earnings or employment.
- The quality of causal evidence presented in this report is low because the study did not adequately account for existing differences between the study groups. This means we are not confident that any estimated effects would be attributable to employer subsidies.
Intervention Examined
The Work Opportunity Tax Credit and Welfare-to-Work Tax Credit
Features of the Intervention
At the time of this study, the Work Opportunity Tax Credit and Welfare-to-Work Tax Credit (which was subsequently merged with the Work Opportunity Tax Credit) provided employers with tax credits for hiring disadvantaged workers. The Work Opportunity Tax Credit provided employers with a one-year tax credit of 40 percent of the employee’s wages, up to a maximum of $2,400, for welfare recipients and other target groups working at least 400 hours per year. The Welfare-to-Work tax credit applied to employers hiring workers who had been welfare recipients for at least 18 months and worked at least 400 hours per year. This two-year tax credit was 35 percent of the employee’s wages in the first year, up to a maximum of $3,500, and 50 percent of wages in the second year, up to a maximum of $5,000. Employers had to request certification of their eligible employees to receive the tax credits. To become certified, workers had to complete paperwork confirming their eligibility, which the employer submitted to the state.
Features of the Study
This nonexperimental study examined the total earnings and number of quarters employed in the first and second years after a worker started a job. The authors conducted two analyses. First, they analyzed the effect of the tax credits overall by comparing the outcomes of 444 certified workers with those of 3,525 eligible but uncertified workers; all workers were employed through temporary help services. Second, they analyzed the effect of employment by a temporary help service by comparing the outcomes of 314 certified workers employed through a temporary help service with those of 10,642 certified workers hired directly through an employer. Because the temporary help service firms—rather than the end employers—would collect the tax credit, the authors hypothesized that workers employed by temporary help service firms would have different earnings than workers employed directly by an employer. The authors used a propensity-score matching model to ensure that the workers being compared in both analyses were initially similar on race, age, and gender.
Findings
- The study found no statistically significant relationships between Work Opportunity Tax Credit or Welfare-to-Work Tax Credit certification and earnings or quarters employed for either the first or second year following a worker starting a temporary help service job.
- The study also found no statistically significant relationships between being a certified worker employed through a temporary help service and earnings or quarters employed.
Considerations for Interpreting the Findings
Although the authors used propensity-score matching to make the groups as similar as possible given the data available, the matching model did not include controls for previous earnings or employment of the workers. Although some models included a firm-level measure of the previous year’s average quarterly earnings at the firm, CLEAR requires inclusion of an individual-level measure of employment and/or earnings measured more than 12 months before the intervention in order to meet the guidelines for a moderate causal evidence rating. Therefore, the study could not receive a moderate causal evidence rating.
Causal Evidence Rating
The quality of causal evidence presented in this report is low because the study did not adequately account for existing differences between the study groups. This means we are not confident that any estimated effects are attributable to employer subsidies.
Additional Sources
Hamersma, S., and Heinrich, C.J. (2008). Temporary help service firms’ use of employer tax credits: Implications for disadvantaged workers’ labor market outcomes. Discussion paper no. 1335-08. Madison, WI: Institute for Research on Poverty.