Large employers earned most of the credit and hired most of the employees under the Work Opportunity Tax Credit program. In 1997, 4,465 corporations earned a total of $135 million in tax credits. The employers who earned most of the credit were large companies, with gross receipts of $1 billion or more, and engaged in nonfinancial services and retail trade. Our analysis of state agency data for California and Texas from 1997 through 1999 showed that 3 percent of participating employers accounted for about 83 percent of all hires of WOTC-certified employees. According to our survey, many employers who participated in the credit program in those two states in 1999 said that, besides the opportunity to obtain the credit, their participation in the program was also greatly influenced by such factors as the need to address a labor shortage (an estimated 36 percent) and the opportunity to be a good corporate citizen (an estimated 41 percent).
Although we were unable to definitively determine the extent to which displacement and churning occur, our review suggests that churning is likely to be very limited, if it occurs at all. Our survey of employers in two states indicates that 93 percent of participating employers said that displacement and churning have little or no cost-effectiveness. According to our survey, those employers estimated that the WOTC offset, on average, 47 percent of employers’ costs of recruiting, hiring, and training certified workers. If employers were practicing churning, it would make the most sense for them to dismiss their WOTC-certified employees near the earnings level ($6,000) that would yield the maximum credit. Data from agencies in California and Texas on the employment of WOTC-certified employees showed that their employment rarely ends near that earnings level. These data also showed that certified workers with Results in BriefPage 3 GAO-01-329 Work Opportunity Tax Credit earnings within plus or minus $1,000 of the $6,000 credit-maximizing level were no more likely to separate from their employers than other certified workers, whose earnings fell short of or exceeded this range. The agency data did not allow us to perform similar tests for the occurrence of displacement, but we would not expect employers to undertake a practice that they said was not cost-effective. Because the results of both our survey and our analyses of employment data were similar for California and Texas, and because many of the firms employing the bulk of WOTC employees in these two states operate in multiple states, we believe the results of our two-state analysis indicate a low probability of displacement and churning in other states as well.