The effectiveness of targeted wage subsidies for hard-to-place workers

Abstract

Targeted wage subsidies paid to employers are an important element of active labour market policies in Germany. This article uses propensity score matching to investigate their effect on the employment and unemployment rates of subsidized hard-to-place workers. In a first scenario, we estimate the average treatment effect of a subsidy on previously unemployed individuals. A second scenario analyses the effects of a subsidy on employment probabilities conditional on taking-up employment. The third scenario investigates the additional effect of a subsidy on individuals, who have participated in a short-term training measure beforehand. Summing up and in line with the literature, the results show that subsidies have a favourable effect on the employment prospects of participants.

Acknowledgements

The project has been part of the Module 1d of the evaluation of the Hartz reforms. We are grateful for financial support by the German Federal Ministry for Labour and Social Affairs (BMAS), to Sarah Bernhard and to Matthias Schäffer for valuable research assistance, to Katja Wolf and an anonymous referee for helpful hints, and to all our cooperating project partners from IAB, IAT and ZEW for helpful discussions.