Rethinking Work Opportunity: From Tax Credits to Subsidized Job Placements

The Work Opportunity Tax Credit (WOTC) was “designed to encourage employers to increase hiring of members of certain disadvantaged groups, but studies have found it had little effect on hiring choices or retention…Most of the benefit of the credit appeared to go to large firms in high turnover, low-wage industries, many of whom use intermediaries to identify eligible workers and complete required paperwork. These findings suggested very high levels of windfall costs, in which employers received the tax credit for hiring workers whom they would have hired in the absence of the credit” (p.1).

In 2009, a majority of states began operating subsidized employment programs using money from the Temporary Assistance for Needy Families (TANF) Emergency Fund (EF). The TANF EF subsidized job programs provided much deeper subsidies than under WOTC, so they had a greater potential to influence employer action. Agencies began using the EF subsidies to “encourage employers to expand employment during the recession or to hire disadvantaged workers whom they would not otherwise have considered” (p.2). Based on the promise of subsidized employment programs such as TANF EF, this report concluded that future federal funding for the WOTC should be redirected to support subsidized jobs programs (p.16). (Abstractor: Author and Website Staff)

When comparing the WOTC with TANF EF subsidized jobs, the report team found the following results: • TANF EF created some new temporary jobs, whereas WOTC did not (p.13). • Neither program supported the creation of new permanent jobs (p.13). • Although WOTC is designed to incentivize employers to hire disadvantaged workers rather than other possible employees, there was little evidence that it did so. Conversely, TANF EF was effective in doing this (p.13). • Although both programs increased participants’ short-term earnings and employment, TANF EF did so more than WOTC (p.13). • WOTC did not increase participants’ long-term earnings and employment. Based on the results of similar programs, TANF EF could possibly do so (p.13). • Based on the more effective findings from TANF EF’s subsidized jobs program, the report concluded that such programs were “effective in providing low-income parents and youth an opportunity to earn badly needed income in a socially valued way, to reconnect with the world of work, and learn skills that might lead to future employment” (p.16). Due to the constraints on local and state budgets, subsidized job programs would be difficult to continue without additional federal funding. The author concludes that federal funding originally geared towards WOTC should be redirected to support subsidized jobs programs (p.16). (Abstractor: Author and Website Staff)

• Last Updated:
• Created:
• Resource Publication Date: 2011
• Author(s): Lower-Basch, Elizabeth
• Organizational Author(s): Center for Law and Social Policy, Inc. (CLASP)
• Funding Source: Annie E. Casey Foundation, W.K. Kellogg Foundation
• Resource Availability: Publicly available
• Posted by: Melissa Mack
• Posted in: Workforce System Strategies