Do wage subsidies increase labor force participation? Evidence from 30 countries around the world

• In Event: Wage Subsidies and Tax Credits

Abstract

Here is a summary: https://www.brookings.edu/articles/do-wage-subsidies-increase-labor-force-participation/
This paper explores the effects of refundable wage subsidies on labor force participation across 30 countries. Wage subsidies, such as earned income tax credits and other work-based financial incentives, have become a popular policy tool for encouraging labor supply, particularly among low-income families and marginalized groups. Drawing on a comprehensive review of international evidence, the analysis reveals that these programs consistently boost labor force participation, especially for single parents and workers on the economic margins. Although the specific design and generosity of subsidies vary by country, common features—such as refundability and phase-in structures—appear to play a crucial role in driving participation gains. The findings suggest that wage subsidies can be a powerful mechanism for increasing employment while alleviating poverty, providing important lessons for policymakers seeking to support low-wage workers and enhance economic opportunity. Moreover, the international evidence underscores that while some debate remains over the magnitude of labor supply responses, the broad trend is clear: wage subsidies generally increase participation, with the largest effects observed in populations with historically low attachment to the labor market. This paper adds to the policy discourse by synthesizing cross-national experiences and offering insights on program design features that maximize employment outcomes. It also situates the findings within ongoing discussions about the trade-offs between direct income transfers and labor market incentives. Overall, this paper underscores the potential of wage subsidies as a viable strategy for promoting inclusive labor market participation across diverse policy contexts.

Author

• Jacob Bastian, Rutgers University