Abstract

According to of the Social Code II (§16e und §16i SGB II), business establishments can obtain wage subsidies for employing long-term unemployed persons and long-term welfare benefit recipients. Such subsidization schemes bear the risk of non-intended take-up by establishments. In particular, first, establishments might take up the subsidy for employees although they would have employed eligible persons anyway (“deadweight loss”). Second, establishments might replace employees not eligible for the subsidy with subsidized employees (“substitution effects”). Third, establishments using the subsidy might thereby attain advantages over competitors, which might distort competition (“displacement effects”). Using administrative establishment-level data, this project investigates whether and to what extent the subsidies according to articles 16e and 16i lead to deadweight loss, substitution effects, and displacement effects.