Cui prodest? A firm-level analysis of hiring credits

In the aftermath of the Great Recession, hiring credits have become popular worldwide. The empirical lit- erature shows positive but moderate effects of such interventions on employment. However, an in-depth anal- ysis of the characteristics of the beneficiary firms and their wage-setting policies is still lacking. By using a linked employer–employee dataset, this paper presents a firm-level analysis of a three-year employer-borne payroll tax cut for permanent hirings introduced in Italy in 2015. After estimating firm and worker fixed effects through the standard AKM model, we show that the take-up of hir- ing credits is significantly higher for firms that pay lower wages, are less productive, employ workers with lower mean abilities, and have a lower retention rate. This result is robust to several specifications and stratifications of the sample, and provides a further and different perspective from which to question the use of active labour market policies based on employer-borne payroll tax cuts.