Temporary help service firms' use of employer tax credits: Implications for disadvantaged workers' labor market outcomes

Temporary help services (THS) firms are increasing their hiring of disadvantaged individuals while also increasing their use of employment subsidies for doing so. Do these subsidies - the Work Opportunity Tax Credit (WOTC) and Welfare-to-Work Tax Credit (WtW) - create incentives that improve employment outcomes for THS workers? We examine the distinct effects of THS employment and WOTC/WtW subsidies on earnings and job duration using new survey and administrative data. We find that, even controlling for a broad range of worker and firm characteristics, some important differences persist between THS workers, WOTC/WtWcertified workers, and those who are both THS and WOTC/WtW certified. THS workers who are WOTC certified have similar job duration to eligible unsubsidized workers but much higher quarterly earnings. Among WOTC-certified workers, those in THS firms have similar quarterly earnings to those in other industries but much shorter average job duration. Panel estimates suggest that these effects do not persist over time.