• Corpus ID: 201632720

How Do Payroll Subsidies Affect Employment and Wages ? New Evidence From Firm-Varying Subsidies to Nursing Homes .

@inproceedings{Hegland2018HowDP,
  title={How Do Payroll Subsidies Affect Employment and Wages ? New Evidence From Firm-Varying Subsidies to Nursing Homes .},
  author={Thomas A Hegland},
  year={2018}
}

• Thomas A Hegland
• Published 2018
• Economics

Payroll subsidies hold promise as a tool for increasing employment and wages at targeted firms. I provide new evidence about their effects by studying payroll subsidies offered to nursing homes through 12 state Medicaid programs between 1996 and 2015. Within any given state, these subsidies offered different nursing homes different effective subsidy rates, depending largely on their share of residents on Medicaid. I use this within-state, across-nursing home variation in subsidy rates to identify the effect of the subsidies on employment and wages. My approach contrasts with prior literature by relying on establishment-level identifying variation rather than on across-state variation in subsidy adoption. My results imply that a nursing home receiving the average subsidy of $2.32 per nursing home resident day increased its direct care worker employment per resident day by 6.4% (11.4 minutes) and increased the average hourly wage paid to its direct care workers by 1.5% ($0.31). These figures correspond with an elasticity of employment to subsidies on top of average Medicaid payments of 4.1 and an average wage elasticity of 1.7. I also find evidence that subsidy effectiveness varies by nursing home market concentration and that for-profit nursing homes are less responsive to the subsidies. These results are robust to extending my empirical approach to compare nursing homes in payroll subsidy states to nursing homes in either synthetic control states or geographically neighboring control states that would have received similar subsidies were they located in treatment states. Taken as a whole, my findings indicate that nursing home payroll subsidies are substantially more effective than previously thought, suggesting that revisiting the efficacy of other payroll subsidies using firm-level subsidy variation would be valuable.