Tightness and stigma effects: evidence from wage subsidies

Abstract

This paper analyses under what conditions employers recruit from the long-term unemployed. We know that firms employ long-term unemployed when the labour market tightens sufficiently. This paper explores whether employers recruit from the long-term unemployed when the pool of long-term unemployed becomes more heterogeneous and of higher quality, which occurs in slack labour market conditions. In such conditions the effectiveness of stigma evaporates. We employ a British survey on firms participating in wage subsidy schemes. We find support for our proposition. Employers recruit from the long-term unemployed for progressively more complex jobs when labour market tightness eases.