How Do Payroll Subsidies Affect Employment and Wages? New Evidence from Establishment-Varying Subsidies to Nursing Homes (draft)
Payroll subsidies hold promise as a tool for increasing employment and wages at targeted firms. I provide new evidence about their effects by studying payroll subsidies offered to nursing homes through 12 state Medicaid programs between 1996 and 2015. Within any given state, these subsidies offered different nursing homes different effective subsidy rates, depending largely on their share of residents on Medicaid. I use this within-state, across-nursing home variation in subsidy rates to identify the effect of the subsidies on employment and wages. My approach contrasts with prior literature by relying on establishment-level identifying variation rather than on across-state variation in subsidy adoption. My results imply that a nursing home receiving the average subsidy of $2.32 per nursing home resident-day increased its direct care worker employment per resident-day by 6.4 percent (11.4 minutes) and increased the average hourly wage paid to its direct care workers by 1.5 percent ($0.31). These figures correspond with an elasticity of employment to subsidies on top of average Medicaid payments of 4.5 and an average wage elasticity of 1.1. I also find suggestive evidence that for-profit nursing homes are less responsive to the subsidies. These results are robust to extending my empirical approach to compare nursing homes in payroll subsidy states to nursing homes in either synthetic control states or geographically neighboring control states that would have received similar subsidies were they located in treatment states. Taken as a whole, my findings indicate that nursing home payroll subsidies are substantially more effective than previously thought, suggesting that revisiting the efficacy of other payroll subsidies using firm-level subsidy variation would be valuable.
Excess Capacity and Heterogeneity in the Fiscal Multiplier: Evidence from the Obama Stimulus Package (with Arindrajit Dube, Ethan Kaplan, and Ben Zipperer; draft)
Abstract: We estimate local multipliers using cross-county variation in expenditure in the American Recovery and Reinvestment Act of 2009. We use within-state variation and include other demographic controls as well as a predicted employment control using an industry shift-share measure. We find that counties receiving more stimulus expenditures had followed parallel employment trends prior to the ARRA as compared to other counties. We estimate an average annualized employment multiplier of 1.211 job-years per $100K spent per county resident. We find strong evidence of heterogeneous treatment effects: the employment response is much greater in counties hit harder by the Great Recession and hence with likely greater excess capacity. In below median excess capacity counties, the employment multiplier is 0.39. In above median excess capacity counties, the multiplier rises to 2.83. These findings imply that an employment-maximizing stimulus package targeted to high excess capacity counties would have created 83% more (3.60 million) jobs. While our findings are consistent with state-dependent fiscal multipliers, the heterogeneity is not due to the zero-lower bound since our cross-sectional variation in excess capacity holds the interest rate constant. Instead, our findings suggest that the spatial variation in multipliers reflects variation in the depth of the recession across different labor markets. Consistent with the evidence on hysteresis, we find that the employment impact of the stimulus was long lasting and has likely persisted through the current expansion.
Work In Progress
Market Structure and the Efficacy of Nursing Home Payroll Subsidies
Political Economic Determinants of Local Labor Market Shock Persistence (with Danny Koliner)
If You Build It, Will They Read? The Effect of Carnegie Libraries on Literacy (with Heath Witzen)
On the General Equilibrium Wage Effects of Education Expansions (with Ethan Kaplan and Danny Koliner)