Cui prodest? A firm-level analysis of hiring credits

Abstract

In the aftermath of the Great Recession, hiring credits have become popular worldwide. The empirical literature shows positive but moderate effects of such interventions on employment. However, an in-depth analysis of the characteristics of the beneficiary firms and their wage-setting policies is still lacking. By using a linked employer–employee dataset, this paper presents a firm-level analysis of a three-year employer-borne payroll tax cut for permanent hirings introduced in Italy in 2015. After estimating firm and worker fixed effects through the standard AKM model, we show that the take-up of hiring credits is significantly higher for firms that pay lower wages, are less productive, employ workers with lower mean abilities, and have a lower retention rate. This result is robust to several specifications and stratifications of the sample, and provides a further and different perspective from which to question the use of active labour market policies based on employer-borne payroll tax cuts.