The Work Opportunity Tax Credit (WOTC) is a $2 billion annual federal program intended to incentivize the hiring of veterans, people with disabilities, and low-income individuals. The credit is currently on hiatus. This may be for good reason. A recent study found that the program is failing its mission.
The research, which used administrative data for 13 million individuals over two decades in Wisconsin, found that WOTC had no measurable effect on hiring, employment, or earnings for the target populations. The data suggests that 97% of subsidized hires would have occurred even without the credit.
Most of the jobs that were subsidized were low-wage, short-term positions in fast food, retail and temporary staffing. In Wisconsin, half of all WOTC credits went to 48 large firms, primarily temporary staffing agencies. Most employers who claimed the subsidy did so after a hiring decision had already been made.
We saw similar findings when we looked at state-level hiring tax credits intended to encourage hiring of specific populations, including veterans and individuals with disabilities. Most of these tax credits are used by few taxpayers and have had minimal impacts on hiring and workforce outcomes.
Why the incentive fails
The study identified several factors that prevent the incentive from working:
- Lack of Awareness: Fewer than 20% of job applications at participating firms even ask the questions necessary to identify an eligible candidate.
- Legal Fears: Hiring managers often intentionally steer clear of eligibility data to avoid potential discrimination lawsuits.
- Third-Party Processing: Eligibility data is typically routed directly to payroll processors, meaning the person actually making the hiring decision never knows a subsidy is available.
A better path: system-level collaboration
Policymakers looking for higher-impact models should look to other strategies. Last month, the National Center on Leadership for the Employment and Economic Advancement of People with Disabilities (LEAD Center) hosted a webinar on state initiatives to advance disability employment. Strategies include:
- Cross-Agency Integration: “No wrong door” experiences that eliminate the need for job seekers to navigate multiple government agencies; align eligibility standards and formalize partnerships across workforce, education, and human services.
- Blending and Braiding Funds: Combine dollars from multiple funding streams and/or simultaneously use different funds to serve individuals, providing integrated case management and more efficient services.
- State policies: Promote coordination and collaboration; provide resources for training and technical support
Conclusion
The findings offer a clear signal for federal, state, and local policymakers that it is time to pivot from passive hiring tax credits to active, system-level collaborations. If incentives continue to be offered they should be redesigned so they are integrated into the wider workforce and support systems serving individuals. A better hiring incentive braided into existing services could be a powerful catalyst to more meaningful employment opportunities for people who face the greatest barriers to work.
For more information: Jain, M., Mommaerts, C., & Weaver, J. (2025). Hiring Subsidies for the Disadvantaged: Evidence from the Work Opportunity Tax Credit. https://conference.nber.org/conf_papers/f217761.pdf
The image accompany this article was generated by AI.
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