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Research Questions

  1. Are tax credits effective at increasing the employment of targeted groups of veterans?
  2. What were the employment effects of the 2007 expansion of the Work Opportunity Tax Credit program?
  3. Did some subgroups of disabled veterans benefit more from the expansion?

In response to growing concerns regarding the employment situation of veterans, between 2007 and 2011 Congress enacted three separate employer tax credits designed to encourage veteran hiring. For these initiatives, as for many other federal programs that aim to improve veterans' employment prospects, there exists little rigorous evidence demonstrating program effectiveness. This paper uses the 2007 expansion of the Work Opportunity Tax Credit program to measure the impact of tax credits on employment of disabled veterans. Using nationally representative data from the American Community Survey and a multiple-differences research design, the paper demonstrates that the new tax credit increased employment among the target group of disabled veterans by 2 percentage points in 2007 and 2008, representing roughly 32,000 jobs each year. Impacts were largest for older veterans, and the tax credits improved employment for those with both cognitive and noncognitive disabilities. The credit also increased income of the targeted group by around 40 percent and primarily generated full-time positions. Rough calculations place the cost of this program per job generated at around $10,000 or less. These results suggest that tax credits can be an effective means of improving employment among disadvantaged veteran populations.

Key Findings

The 2007 Expansion of the Work Opportunity Tax Credit (WOTC) Program Increased Employment Among Disabled Veterans

  • The WOTC program increased employment among disabled veterans by 2 percentage points in 2007 and 2008, representing roughly 32,000 jobs each year.
  • The WOTC program also increased annual the wage income of the target group by 40 percent, which equates to roughly $1,000 per eligible individual.
  • Benefits were largest for older veterans and veterans who did not come from disadvantaged backgrounds.
  • Both those with cognitive and noncognitive impairments benefited from the tax credits.
  • Rough calculations place the cost of the WOTC program per job generated at around $10,000 or less.

Employer Tax Credits May Be a Useful Policy Tool

  • Employer tax credits may provide a valuable source of labor market support for returning and injured veterans and can be an effective means of enhancing employment even among groups, such as the disabled, who have traditionally experienced low rates of labor force participation.

This research was conducted within the Forces and Resources Policy Center of the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

This report is part of the RAND Corporation Occasional paper series. RAND occasional papers may include an informed perspective on a timely policy issue, a discussion of new research methodologies, essays, a paper presented at a conference, or a summary of work in progress. All RAND occasional papers undergo rigorous peer review to help ensure that they meet high standards for research quality and objectivity.

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