1 / 23 The efficacy of hiring credits in distressed areas Jorge Pérez 1 Michael Suher 2 1 Brown University 2 Furman Center for Real Estate and Urban Policy, New York University. National Tax Association Annual Meeting, Nov 12 2016
2 / 23 One slide presentation What we do - Estimate the effect of hiring tax credits on employment and unemployment How we do it - Exploit unique institutional setting in North Carolina Counties assigned different credit amounts based on an economic distress ranking - Compare counties that received different tax credits Across tiers that determine credit amounts (differences in differences) Across distress rank cutoffs that determine tiers (regression discontinuity) What we find For a $10,000 a year credit - Increases in employment levels of around 3 % - Decreases in unemployment rate of around 0.7 percentage points
3 / 23 Effectiveness of Hiring Tax Credits Demand side intervention Effectiveness may vary across areas and over the economic cycle - Limited effectiveness in average times and areas: Bartik (2001), Neumark and Grijalva (2015) - More effective during recessions under rigid wages. Neumark (2013) - More effective in permanently depressed areas. Kline and Moretti (2013), Amior and Manning (2015) Place based policy: May only induce labor reallocation May result in wastage / churning
4 / 23 Difficulties in Evaluating Hiring Tax Credits Program assignment endogenous by design: Credits given to distressed counties Mean reversion may bias estimates (Ashenfelter s Dip) Mixed evidence in previous studies: Freedman (2013) Neumark and Grijalva (2015), Chirinko and Wilson (2016)
5 / 23 North Carolina s Hiring Tax Credits Rank 100 counties according to economic distress Ranking components: Unemployment rate, household income, population growth, property values. Assign different credit amounts based on ranking. Focus on 1996 wave of the program, first tiers. Credit size by distress rank (Dollars per year) Distress Years 10 20 30 40 50 60 70 80 90 100 1998-1995 2,800 1996-2006 12,500 3,000-4,000 1,000 500 2007-2013 12,500 5,000 750
5 / 23 North Carolina s Hiring Tax Credits Rank 100 counties according to economic distress Ranking components: Unemployment rate, household income, population growth, property values Assign different credit amounts based on ranking Focus on 1996 wave of the program, first tiers Credit size by distress rank (Dollars per year) Distress Years 10 20 30 40 50 60 70 80 90 100 1998-1995 2,800 1996-2006 12,500 3,000-4,000 1,000 500 2007-2013 12,500 5,000 750
6 / 23 William S. Lee Act 1996-2006 $12,500 dollars for 10 most distressed counties Industry targeting: Manufacturing, wholesale trade, warehousing, data processing Overrides for distress ranking based assignment from 2000 Low population or high poverty Keep the program for at least two years. 28 counties receive subsidy by 2006
Counties by tier, 1996 Alamance Alexander Alleghany Anson Ashe Avery Beaufort Bertie Bladen Brunswick Buncombe Burke Cabarrus Caldwell Camden Carteret Caswell Catawba Chatham Cherokee Chowan Clay Cleveland Columbus Craven Cumberland Currituck Dare Davidson Davie Duplin Durham Edgecombe Forsyth Franklin Gaston Gates Graham Granville Greene Guilford Halifax Harnett Haywood Henderson Hertford Hoke Hyde Iredell Jackson Johnston Jones Lee Lenoir Lincoln Mcdowell Macon Madison Martin Mecklenburg Mitchell Montgomery Moore Nash New Hanover Northampton Onslow Orange Pamlico Pasquotank Pender Perquimans Person Pitt Polk Randolph Richmond Robeson Rockingham Rowan Rutherford Sampson Scotland Stanly Stokes Surry Swain Transylvania Tyrrell Union Vance Wake Warren Washington Watauga Wayne Wilkes Wilson Yadkin Yancey 1 2 3 7 / 23
8 / 23 County level labor market variables Averages per county (Thousands) 100 90 80 70 Population 60 1990 1995 2000 2005 2010 Year 34 32 30 28 26 Employment 24 1990 1995 2000 2005 2010 Year 5 4 3 2 Unemployment 1 1990 1995 2000 2005 2010 Year 50 45 40 Labor force 35 1990 1995 2000 2005 2010 Year
9 / 23 Research Design Ranking weakly correlated with trends in outcome variables before the program Estimation methods Differences in differences (DD): Compare counties across tiers Regression discontinuity (RD): Compare counties on either side of tier cutoffs Outcomes: Log employment Unemployment rate
10 / 23 Covariates and Outcome Growth by Ranking, 1996 4 Population Growth Wave 1-1996 25 Poverty Rate Wave 1-1996 3 20 2 15 1 0 10-1 0 20 40 60 80 100 Distress Rank 5 0 20 40 60 80 100 Distress Rank 4 Unemployment Rate - One Year Difference Wave 1-1996 15 Employment Growth Wave 1-1996 10 2 5 0 0-5 -2 0 20 40 60 80 100 Distress Rank -10 0 20 40 60 80 100 Distress Rank
DD: Log Employment 9.1 Log Employment 8.38 9.08 No Subsidy 8.36 9.06 Subsidy (Secondary axis) 8.34 9.04-5 -4-3 -2-1 0 1 2 3 4 Time to event 8.32 11 / 23
DD: Unemployment Rate 6.5 Unemployment Rate (%) 8.5 6 Subsidy (Secondary axis) 8 5.5 5 No Subsidy 7.5 7 4.5-5 -4-3 -2-1 0 1 2 3 4 Time to event 6.5 12 / 23
13 / 23 DD: Estimation Y ct = β 0 + γ c + γ t + K θ k tier1 t k + βx ct + ε ct (1) k=0 Allow for lagged effects: Subsidy may take time to gain traction Also allows comparisons of counties with similar treatment history Controls: Lag K + 1 of dependent variables, population, labor force, distress rank, income per capita Allow for heterogeneous trends Few counties per regression: Clustered wild percentage-t bootstrap (Cameron et. al 2015)
14 / 23 DD Results: Employment Dependent Variable: Log Employment (1) (2) (3) (4) (5) Tier1-0.00398 0.00699-0.00174-0.00652 0.00181 (0.0186) (0.0136) (0.0129) (0.00870) (0.00778) Lag Tier 1-0.0225-0.0282-0.0206-0.0175 (0.0131) (0.0143) (0.00904) (0.00913) Lag 2 Tier 1-0.00488-0.00892-0.0143-0.00959 (0.00750) (0.00802) (0.00898) (0.00774) Lag 3 Tier 1 0.0208 0.00440-0.00152-0.0000123 (0.0164) (0.0175) (0.0139) (0.0132) R 2 0.991 0.994 1.000 1.000 1.000 N 714 588 588 588 546 Counties 42 42 42 42 42 County FE Yes Yes Yes Yes Yes Year FE Yes Yes Yes Yes Yes Group trends Yes County trends Yes Yes Controls Yes Clustered standard errors in parentheses. P-values from clustered wild percentage t bootstrap. p < 0.1, p < 0.05, p < 0.01
15 / 23 DD Results: Unemployment Dependent Variable: Unemployment Rate (1) (2) (3) (4) (5) Tier1-0.0532 0.264 0.413 0.0724 0.0596 (0.283) (0.187) (0.194) (0.164) (0.148) Lag Tier 1-0.0793 0.0171-0.121-0.0310 (0.200) (0.188) (0.168) (0.188) Lag 2 Tier 1-0.383-0.314-0.293-0.233 (0.216) (0.192) (0.117) (0.119) Lag 3 Tier 1-0.956-0.677-0.518-0.438 (0.314) (0.246) (0.189) (0.174) R 2 0.652 0.669 0.970 0.982 0.984 N 714 588 588 588 546 Counties 42 42 42 42 42 County FE Yes Yes Yes Yes Yes Year FE Yes Yes Yes Yes Yes Group trends Yes County trends Yes Yes Controls Yes Clustered standard errors in parentheses. P-values from clustered wild percentage t bootstrap. p < 0.1, p < 0.05, p < 0.01
16 / 23 RD: Estimation Y c,t+k Y c,t = β 0 + β t + f (rank c,t ) + θ k tier1 c,t + βx c,t + ε c,t (2) Only on compliers, exclude defiers from overrides (Wong. et. al 2013 ) Constant treatment effects, treatment only depends on years since program starts Keep f () linear, limited sample size for nonparametrics Dynamics: Current estimates don t disentagle indirect effects from changes in likelihood of receiving credits in the future (Cellini et. al. 2010)
RD: Graphical results. Log Employment.05 3 Year Difference in Log Employment Wave 1 - Tier 1 vs 2 0 -.05 -.1-20 0 20 40 60 Normalized distress rank 17 / 23
RD: Graphical results. Unemployment 2 3 Year Difference in Unemployment Rate Wave 1 - Tier 1 vs 2 1 0-1 -2-20 0 20 40 60 Normalized distress rank 18 / 23
19 / 23 RD estimates - Employment Dependent Variable: Log Employment (1) (2) (3) 1 Year 2 Years 3 Years Tier 1-0.00407 0.0199 0.0309 (0.00749) (0.0127) (0.0181) Distress Rank -0.00000460 0.000684 0.00108 (0.000228) (0.000352) (0.000532) R 2 0.110 0.205 0.237 N 406 367 329 Counties 70 66 66 Controls Yes Yes Yes Clustered standard errors in parentheses p < 0.1, p < 0.05, p < 0.01
20 / 23 RD estimates - Unemployment Dependent Variable: Unemployment Rate (1) (2) (3) 1 Year 2 Years 3 Years Tier 1-0.277-0.565-0.628 (0.165) (0.245) (0.355) Distress Rank -0.00103-0.00257 0.00249 (0.00439) (0.00670) (0.00966) R 2 0.487 0.587 0.629 N 406 367 329 Counties 70 66 66 Controls Yes Yes Yes Clustered standard errors in parentheses p < 0.1, p < 0.05, p < 0.01
21 / 23 Summary of results Sizable effects of hiring credits For a credit of 10.000 3 % higher employment 0.7 p.p lower unemployment rate Suggests hiring credits more effective in distressed areas Evidence of bias in difference in difference estimates
22 / 23 Conclusions and way forward Sizable effect of hiring credits at county level. Working on Dynamic RD estimates More flexible RD estimates with limited sample size Spatial equilibrium effects
23 / 23 Thank you! jorge perez@brown.edu sites.google.com/site/jorpppp michael.suher@nyu.edu https://sites.google.com/site/michaelsuher
Counties by tier, 2006 Alamance Alexander Alleghany Anson Ashe Avery Beaufort Bertie Bladen Brunswick Buncombe Burke Cabarrus Caldwell Camden Carteret Caswell Catawba Chatham Cherokee Chowan Clay Cleveland Columbus Craven Cumberland Currituck Dare Davidson Davie Duplin Durham Edgecombe Forsyth Franklin Gaston Gates Graham Granville Greene Guilford Halifax Harnett Haywood Henderson Hertford Hoke Hyde Iredell Jackson Johnston Jones Lee Lenoir Lincoln Mcdowell Macon Madison Martin Mecklenburg Mitchell Montgomery Moore Nash New Hanover Northampton Onslow Orange Pamlico Pasquotank Pender Perquimans Person Pitt Polk Randolph Richmond Robeson Rockingham Rowan Rutherford Sampson Scotland Stanly Stokes Surry Swain Transylvania Tyrrell Union Vance Wake Warren Washington Watauga Wayne Wilkes Wilson Yadkin Yancey 1 2 3 23 / 23
DD: Log Employment 9.15 Log Employment Tiers 1 and 2 Subsidy (Secondary axis) 8.4 9.1 No Subsidy 8.35 9.05 8.3 9 1990 1995 2000 2005 Year 8.25 23 / 23
DD: Unemployment Rate 10 Unemployment Rate Tiers 1 and 2 (%) 8 Subsidy 6 No subsidy 4 1990 1995 2000 2005 Year 23 / 23