Hiring Credits Can Create Jobs

THOMAS LE BARBANCHON, IN THE PAPER THAT WON THE 2022 IMPACT AWARD, FINDS THAT, AT CERTAIN CONDITIONS, PAYING SMALL FIRMS TO HIRE PEOPLE IS VERY COST EFFECTIVE

Perhaps surprisingly, there is little empirical evidence about the effects of hiring credits. But Thomas Le Barbanchon, of the Department of Economics, in his paper “The Effectiveness of Hiring Credits”, written in cooperation with Pierre Cahuc (Sciences-Po) and Stéphane Carcillo (OECD), has found that a hiring credit targeted at small firms and low wage workers did have a significant impact on employment in France during the 2008–9 recession. The hiring credit allowed the government to create jobs at zero net cost in a short period of time.
 
The paper touches a topic of extreme social importance, as it studies to what extent hiring credits, in the form in which they were introduced in France, helped curb unemployment. The issue is very sensitive because investing large sums of public money attracts a high level of attention even if the purpose is undoubtedly worthy.
 
The paper compares small firms (less than 10 employees) eligible to the hiring credits with slightly larger firms, between 10 to 13 employees, that are ineligible. Empirical evidence gathered by the authors shows that the gross cost per job created (from the government perspective) is around one fourth of average wages, and the net cost per job created, net of savings on social benefits, is about zero. The paper also shows that the effectiveness of the French hiring credit relied to a large extent on three features: it was non-anticipated, temporary and targeted at jobs with rigid wages.
 
“This paper provides the first strong empirical evidence that such policies significantly increase employment, and consequently help solve the issue of high unemployment.” Le Barbanchon declares. “It uses a quasi-experimental setting – the methodology put forward by the 2021 Nobel laureates in economics.”
 
The paper won the 2022 edition of Bocconi’s Impact Award for outstanding research work.
 


Pierre Cahuc, Stéphane Carcillo, Thomas Le Barbanchon, “The Effectiveness of Hiring Credits”, The Review of Economic Studies, Volume 86, Issue 2, March 2019, Pages 593–626, https://doi.org/10.1093/restud/rdy011
 

by Andrea Costa