Targeted wage subsidies and firm performance

•Studies how targeted employment subsidies affect firm performance.•Subsidized firms are smaller than other firms, but otherwise similar before.•Subsidized firms outperform other firms after the subsidy.•Less clear results after caseworkers no longer needed to approve of subsidy. This paper studies how targeted wage subsidies affect the performance of the recruiting firms. Using Swedish administrative data from the period 1998–2008, we show that treated firms substantially outperform other recruiting firms after hiring through subsidies, despite identical pre-treatment performance levels and trends in a wide set of key dimensions. The pattern is less clear from 2007 onwards, after a reform removed the involvement of caseworkers from the subsidy approval process. Overall, our results suggest that targeted employment subsidies can have large positive effects on post-match outcomes of the hiring firms, at least if the policy environment allows for pre-screening by caseworkers.