Employment in Construction and Distribution Industries: The Impact of the New Jobs Tax Credit

Abstract

Excerpt] The New Jobs Tax Credit (NJTC) offers a tax credit of fifty percent of the first $4200 of wages per employee for increases in employment of more than two percent over the previous year. Economic theory predicts that such a tax credit should stimulate employment, decrease hours worked per week, and reduce product prices of the subsidized industries. A time series analysis of the construction, retailing, and wholesaling industries finds strong support for these hypotheses. Our results suggest that the NJTC was responsible for 150,000-670,000 of the more than 1-million increase in employment that occurred between mid-1977 and mid-1978 in the construction and retailing industries. Similar analysis indicates that by June 1978, NJTC had produced roughly a 1 percentage point reduction in the margin between retail and wholesale prices of commodities that saved consumers $1.9-$3.6 billion over the course of the previous year.