Previous national and international evaluations have raised serious questions about subsidies for hiring and employing older workers. New research from Ghent University offers an explanation: the subsidy triggers negative perceptions among employers regarding these hires.

In particular, doctoral researcher Axana Dalle, labour economics professor Stijn Baert, and welfare economics professor Elsy Verhofstadt investigated the signalling effect of the target group reduction for job seekers aged 58 and older. They presented Flemish recruiters with job candidates who randomly differed in factors such as gender, work experience, unemployment duration, and whether the employer would qualify for this subsidy.

Findings

1. Candidates who would qualify for the subsidy are less likely to be recommended for an interview or to be hired.
2. This is because these subsidised candidates are perceived as less productive. Specifically, they are seen as less physically capable and less technologically skilled.
3. Employers also anticipate that hiring these applicants would involve a complex administrative process and increased labour inspections.

Theoretical perspective
Theoretically, these findings are related to “signalling theory,” which posits that employers lack sufficient information from a résumé to accurately gauge an applicant’s productivity. Attributes such as motivation, flexibility, and technological proficiency are not directly observable. Consequently, employers make predictions—consciously or unconsciously—based on characteristics that are visible on the résumé, such as age and subsidies. When these characteristics are related to attributes for which unequal treatment is prohibited, we speak of "statistical discrimination."

“The positive financial incentive is thus outweighed by negative productivity signals. Although this effect was likely exaggerated in our experiment due to the hypothetical setting where employers did not directly experience the financial impact, this is the first empirical evidence worldwide explaining why such subsidies for older workers may fail to achieve their intended effect.” Axana Dalle, doctoral researcher (Ghent University).

“Repeated field tests have shown that age discrimination remains a significant issue in our labour market. In previous research, we also identified the stigmas responsible for this discrimination. These stigmas—particularly the perception that older candidates are less technologically adept—seem to be intensified when older applicants are associated with a subsidy. This appears to add extra focus on their age.” Stijn Baert, professor of labour economics (Ghent University).

“The stigmas associated with ‘a well-intended administrative backpack’ were also found in other labour market programs abroad.” Axana Dalle.

Policy perspective
The Flemish Government decided to discontinue this subsidy as of July 1, 2024. The findings from this study appear to support that decision.

“With the Flemish recovery committee, we recommended that the Flemish Government review subsidies like this one. They often entail a significant ‘deadweight loss,’ meaning that essentially the same people would be hired without the subsidies. This makes them, in a sense, ‘dead weight’ in the budget—an expenditure without creating real welfare gains. Our research finds an even greater effect: the subsidy seems to be counterproductive.” Prof. Stijn Baert.

“It would be illogical to continue investing in labour market programs that fail to achieve their objectives. Instead, it would be better to redirect these funds toward programs that effectively help older adults remain in the labour market longer, perhaps with a greater focus on training and guidance.” Axana Dalle.

More information
The researchers asked 292 professional Flemish recruiters to evaluate four fictitious job applicants each. The evaluation concerned the applicants’ hiring chances as well as 20 perceptions regarding their productivity and potential for collaboration. All fictitious candidates were unemployed, but they differed in age, which affected whether the employer would qualify for a subsidy for hiring unemployed individuals aged 58 and older. Through robust analyses, the researchers identified which effects were due to age and which were due to the subsidy.
Detailed information on the experiment, analyses, and results can be found in the paper published by the Journal of Economic Behavior & Organization.
Further research on the ineffectiveness of subsidies for hiring and employing older workers (at both federal and regional levels) is linked in a Story @ UGent @ Work.