Selective Employment Subsidies: Can Okun’s Law Be Repealed?

[Excerpt] Concern that structural factors impede efficient labor market performance is evidenced in both statistical analyses of economic potential and policy proposals for selective employment subsidies. Estimates of the level and expected growth of full-employment GNP have recently been revised downward, as has the 3.2 unemployment multiplier implicit in Okun\u27s Law (see U.S. Council of Economic Advisers and George Perry). These indications of structural changes in labor markets reinforce statistics showing excessively high unemployment rates for youths and blacks, and labor force participation rates that are increasing for women and decreasing for men. The simultaneous concern with high inflation and high measured unemployment, in the context of major changes in labor force composition and increased variance in sectoral unemployment rates (see Perry), has brought forth numerous and sizable selective employment subsidy policies (SESP) in both the United States and Western Europe. The SESP, changes in potential GNP, and Okun\u27s Law are not unrelated phenomena. This paper explores that relationship. Section I presents a brief taxonomy of the primary SESPs which are currently being discussed in Western industrialized countries. Section II provides the economic rationale underlying these measures. Section III explores the relationship of SESP to the prospective growth of aggregate output, in the context of Okun\u27s Law. Evidence on the existence and magnitude of changes in employment decisions in response to the New Jobs Tax Credit (NJTC) is presented in Section IV

Does the Targeted Jobs Tax Credit Create Jobs at Subsidized Firms?

This paper uses the results of a survey of more than 3,500 private employers to determine whether use of the Targeted Jobs Tax Credit (TJTC) alters the level of a firm\u27s employment and/or whom the firm hires. We estimate that each subsidized hire generates between .13 and .3 new jobs at a participating firm. Use of the program also appears to induce employers to hire more young workers (age 25 and under). Our results suggest, however, that at least 70 percent of the tax credits granted employers are payments for workers who would have been hired even without the subsidy. Such payments represent mere transfers to employers

The Anatomy of Changing Male Earnings Inequality: An Empirical Exploration of Determinants

The source of the increased inequality in the distribution of male earnings has been the focus of much economic analysis. In this working paper, Robert H. Haveman and Lawrence Buron attempt to find the source of the increased inequality in the distribution of male earnings since the 1970s. Specifically, they seek to find: (1) the relative contributions of changes in wage rates and hours worked to the observed increase in male earnings inequality; (2) whether the relative contributions of changes in relative wage rates and work times to earnings inequality alters if the population examined is all males versus all male workers; (3) the changes over time in wage rate and work time variability within the standard categories of male work patterns; and (4) what the effect of changes in the structure of male work patterns—for example, FTYR work versus part–time or part–year work—has been on the pattern of earnings inequality.