Do Long-term Unemployed Workers Benefit from Targeted Wage Subsidies?

We evaluate a wage subsidy program that is targeted at long-term unemployed workers in Germany. We use an alternative identification procedure compared to empirical studies con­ducted so far. Exploiting the particular program regulations and large administrative data we estimate the impact of program availability using a regression discontinuity framework. Our results suggest no significant impact of the availability of the subsidy on labor market out­comes of the target group. Even though our analysis lacks some statistical power, our findings do not support the substantial positive effects obtained from matching studies. As our ap­proach does not require observability of all drivers of selection, previous empirical studies justifying government expenditures on wage subsidies based on matching methods should be reconsidered.