Home work: Exploring the labor market effects of subsidizing domestic services

This paper analyzes subsidies for the domestic services sector, an increasingly popular policy to create employment opportunities for low-skilled workers. Using Belgian administrative data, a differences-in-differences approach, and a shift-share instrumental variable, we estimate the local effects of the policy in targeted industries as well as overall effects on the labor market. We find that domestic service subsidies can increase female employment in the subsidized industries as well as the overall employment rate. This increase in employment is primarily driven by an increase in (formal) labor market participation and, to a lesser extent, a reduction in the rate of participation in unemployment insurance and in other social welfare programs. We also find that these subsidies can lead to an increase in the rate of work incapacity, likely due to the fact they broaden the population that can access the social safety net.