Do wage subsidies for disabled workers reduce their non-employment? Evidence from the Danish Flexjob scheme

We evaluate the potential of wage subsidy programs for reducing non-employment of the disabled by exploiting a reform of the Danish Flexjob scheme targeted towards employing the long-term (partially) disabled. Firms received a salary reimbursement for all employees granted a Flexjob. We examine whether a change from full to partial reimbursement to governmental units affected the share of Flexjobs allocated to retained (insiders) versus non-employed hirees (outsiders). After the reform, the composition of hires changed substantially in favor of insiders, both in absolute and relative terms. A reduction in subsidies thus leads to a decrease in the hiring of the non-employed disabled.