U.S. TREASURY DEPARTMENT 

ESTIMATES OF NEWLY HIRED EMPLOYEES ELIGIBLE FOR THE 

HIRE ACT TAX EXEMPTION

July 12, 2010 

 
Estimates of Newly Hired Employees Eligible for the HIRE Act Tax Exemption 

Executive Summary 

In his State of the Union address in January 2010, President Obama called on Congress to enact a 

tax credit for businesses that hire new workers. Less than two months later, Congress passed and 

the President, on March 18th, signed into law the Hiring Incentives to Restore Employment 

(HIRE) Act of 2010. The HIRE Act provides employers an incentive to hire workers who have 

been unemployed for 60 days or longer by exempting wages paid to these workers from the 

employer’s 6.2 percent contribution of Social Security payroll taxes for the remainder of 2010. 

In addition, the HIRE Act allows employers to claim a tax credit of up to $1,000 for each newly 

hired qualifying worker who is retained for one year. If, for example, an employer hires an 

unemployed worker and pays that worker $40,000 in salary this year, the HIRE Act tax 

exemption will reduce the employer’s payroll tax obligations by $2,480 this year (6.2 percent of 

$40,000), and, if the employer retains that worker for 52 weeks, the employer will receive in 

addition a $1,000 tax credit, bringing the total tax savings to $3,480. 

Comprehensive data on the use of the HIRE Act from the Internal Revenue Service (IRS) will 

not be available until after employers file tax returns in 2011, but the Treasury Department has 

analyzed the extent to which employees are being hired who will qualify for the HIRE Act tax 

exemption using monthly Current Population Survey (CPS) data. Among the key findings are: 

• From February to May of 2010, an estimated 4.5 million workers who had been unemployed 

for eight weeks or longer were hired by employers who are eligible for the HIRE Act payroll 

tax exemption. A qualifying employee must be unemployed for 60 days or longer prior to 

being hired, so the employers of these 4.5 million newly hired workers are eligible for the 

HIRE Act tax relief. 

• Newly hired workers whose employers are eligible for the HIRE Act payroll tax exemption 

constitute 12.2 percent of all workers who were unemployed for eight weeks or longer since 

the law took effect. 

• If the 4.5 million newly hired employees who are eligible for the HIRE Act tax exemption 

are employed for the rest of the year, their employers would be eligible for an estimated $5.1 

billion in payroll tax savings. Furthermore, if three quarters of the workers remain employed 

for 52 weeks, which is roughly consistent with historical turnover data for new hires, then 

their employers would receive another $3.4 billion in tax relief with respect to these hires. 

As more unemployed workers are hired during the year, the potential tax savings will rise. 

• The average unemployed worker who has been unemployed for two months or longer has 

been unemployed for about 10 months, so the HIRE Act tax exemption is well targeted at job 

seekers who are having particular difficult in the job market. 

The HIRE Act tax exemption is available for the remainder of 2010. Treasury’s Office of 

Economic Policy will estimate the number of newly hired workers whose employers potentially 

qualify for the HIRE Act tax exemption and update this report monthly for the rest of the year. 

1 
Estimates of Newly Hired Employees Eligible for the HIRE Act Tax Exemption 

Introduction 

To provide an incentive for private sector employers to hire unemployed workers, the Hiring 

Incentives to Restore Employment (HIRE) Act of 2010 exempts wages paid during 2010 to 

newly hired long-term unemployed workers from the employer’s 6.2 percent contribution of 

Social Security payroll taxes. It also provides a business tax credit to employers that retain those 

workers for at least one year. This report uses linked monthly data from the Current Population 

Survey (CPS) to provide an estimate of the number of hires to date that qualify for the HIRE Act 

tax exemption. Workers that qualify for the HIRE Act tax exemption must satisfy the following 

two requirements: (1) the worker must be hired between February 4, 2010 and December 31, 

2010; (2) prior to being hired the worker must have not been employed for more than a total of 

40 hours during the past 60 consecutive days. We estimate that 4.5 million workers were hired 

from February through May 2010 whose employers were eligible for the payroll tax exemption. 

Background on the HIRE Act 

The HIRE Act was signed into law by President Obama on March 18, 2010. It provided two 

new tax provisions to encourage employers to hire certain previously unemployed workers. The 

first is a payroll tax exemption, which provides employers with an exemption from the 

employer’s 6.2 percent Social Security payroll tax contribution on wages paid to qualifying 

employees. The payroll tax exemption is effective for wages paid from March 19, 2010 through 

December 31, 2010. The second provision is a general business tax credit for each newly hired 

qualified employee who is retained for at least 52 consecutive weeks. The credit is equal to 6.2 

percent of wages paid to that employee over the 52 week period, up to a maximum credit of 

$1,000. The HIRE Act tax exemption can be claimed by any taxable or tax-exempt nongovernmental employer or a public institution of higher learning.1

The HIRE Act is intended to provide employers an incentive for hiring unemployed workers who 

have had particular difficulty finding a job. Eligibility is restricted to workers who have not been 

employed for more than a total of 40 hours during the past 60 consecutive days, which includes 

those who have been in the labor force but unemployed and those entering or re-entering the 

labor force. 2 There is no restriction on the number of hours that a qualifying employee must 

work—although the value of the tax incentive is affected by the qualified employee’s earnings. 

 

1

 To be considered qualified employees, workers may neither be related to the qualified employer nor own a 

majority stake in the business. The self-employed and household employers are not eligible under the HIRE Act. 

Employers may apply the tax exemption to wages paid to a rehired employee who is otherwise a qualified employee. 

2

 Qualified employees must certify by a signed affidavit stating that they meet this criterion. 

2 
The Act prevents employers from firing one worker in order to hire a different, qualifying 

worker.3 The Act is temporary. Qualifying workers must be hired in the period starting on 

February 4, 2010 and ending on December 31, 2010. The Joint Committee on Taxation (JCT) 

estimates that the HIRE Act will cost the Treasury $13.0 billion from 2010 to 2019.4

 

New Hires of Long-term Unemployed 

This report uses the CPS, which is the basis for official government labor force statistics, such as 

the unemployment rate. The CPS consists of a representative sample of about 50,000 housing 

units a month, and labor force questions are asked concerning all working-age adult members in 

the household. The labor force questions relate to the worker’s labor force status in the CPS 

reference week, which is the week that contains the 12th day of the month. The specific date that 

a worker transitions from one labor force status to another is not reported.5

 

The rotation group design of the CPS allows us to create two-month linked samples by matching 

surveyed workers in one month to their records in the next month. This is possible for 

approximately three fourths of the CPS sample. 

For this report, workers are identified as eligible for the tax exemption if they report that they 

have been unemployed for eight weeks or longer in the first month of the two-month period.6 

Eligible workers who report holding a job with a private employer in the second month of the 

two-month period are classified as qualifying for the tax exemption under the HIRE Act. The 

Appendix provides additional details on the construction of the two-month linked sample. 

A. Exemption-Eligible Workers: Unemployed for Eight Weeks or More

For this report, the categorization of workers by eligibility for the HIRE Act tax exemption is 

based on the reported duration of unemployment for unemployed workers in the reference week 

of the first month of the two-month linked sample. Workers who have been unemployed for 

eight weeks or longer in the first month of the two-month period would be eligible for the tax 

exemption if they were hired in the subsequent month. Workers who have been unemployed for 

four weeks or less in the first month of the two-month period would be ineligible for the tax 

exemption if they were hired in the subsequent month, because they would not meet the HIRE 

Act’s 60 days of non-employment requirement in the reference week of the subsequent month. 

 

3

 New hires filling existing positions qualify only if the workers they are replacing left voluntarily or for cause. 4

 The JCT estimates that revenues will fall by $4.2 billion in 2010, $5.6 billion in 2011, $2.4 billion in 2012, and 

less than $500 million in each year from 2013. 

5

 For example, a worker who reported being unemployed in the February CPS and then reported being employed in 

the March CPS may have been hired anytime in the period after the week containing February 12th through the 

week containing March 12th. 

6

 This understates the number of eligible hires. See section C for additional details. 

3 
Workers who have been unemployed for between four and eight weeks in the first month of the 

two-month period form an ambiguous group that may or may not be eligible for the tax 

exemption, depending on exactly how long the worker has been unemployed prior to being hired. 

Because the CPS reports only the labor force status in the reference week and does not report the 

exact date on which workers transition from one labor force status to another, we do not know 

with certainty whether such workers meet the HIRE Act requirements, and therefore focus on 

those unemployed workers that have been unemployed for eight weeks or longer in the initial 

reference week. 

Table 1 presents estimates of the unemployed population each month from February through 

May of 2010 and the share of these unemployed workers that would be eligible for the HIRE Act 

tax exemption if they were hired in the subsequent month. The table shows that a large share of 

the unemployed has been looking for work for at least eight weeks, and thus would qualify for 

the HIRE Act tax exemption should they be hired. In February 2010, 76 percent of unemployed 

workers were unemployed for eight weeks or longer, and in April 2010 that figure was more than 

80 percent. 

B. Transition Rates into Private Employment for Exemption-Eligible Workers

For a worker hired in the second month of the two-month linked sample, the CPS reports 

information on the type of job into which he or she was hired. This information is used to infer 

whether the worker is hired into an exemption-eligible job. For this report, a HIRE Act 

exemption-eligible job is defined as a private, non-self-employed job. 

Table 2 reports the transition rates of workers who have been unemployed for eight weeks or 

longer. Workers can transition into private exemption-eligible employment, transition into 

exemption-ineligible employment, remain unemployed, or leave the labor force. Approximately 

two thirds of those unemployed for eight weeks or longer remained unemployed and continued 

looking for a job in the next month, and approximately one fifth exited the labor force. 

Figure 1 presents monthly estimates of the transition rate into private exemption-eligible 

employment each month since January 2009. To give an indication of the precision of the 

estimated transition rates, plus and minus one standard error bands are indicated by dashed lines 

in the figure.7

 The transition rate into private exemption-eligible employment has averaged 

about 11.0 percent since January 2009. Since the HIRE Act went into effect, 12.2 percent of 

workers who had been unemployed for eight weeks or longer transitioned into private 

exemption-eligible employment. 

 

7

 Standard errors are computed using the sample weights provided by the CPS. 

4 
Based on the CPS data we find that the average unemployed worker who has been unemployed 

for two months or longer has been unemployed for about 10 months, so the HIRE Act tax 

exemption is well targeted at job seekers who are having particular difficult in the job market. 

C. Estimated Number of Exemption-Eligible Hires

Workers who report being unemployed for eight weeks or longer who then transition into private 

employment represent hires for which the employers of those workers are eligible for the HIRE 

Act tax exemption. Table 3 presents estimates of the number of those exemption-eligible hires 

for the period following the passing of the HIRE Act along with their average weekly earnings. 

Since February 2010, more than one million exemption-eligible workers have been hired each 

month. The monthly total of exemption-eligible hires was highest in April (1.8 million workers). 

Some 4.5 million workers were hired from February through May 2010 whose employers were 

eligible for the HIRE Act payroll tax exemption. 

This figure likely understates the number of eligible hires because it is based on the number of 

workers who reported being unemployed during the first month of the two-month linked sample 

and employed in the subsequent month. Workers who were out of the labor force and had not 

worked for 60 days as of the first month of our sample but were then hired in the subsequent 

month may qualify for the tax exemption, but are not included in our tabulations due to data 

limitations.8

 

Table 3 shows that the average weekly earnings of the newly hired eligible workers is $513 in 

their new job, based on the CPS data. An exemption from the 6.2 percent Social Security payroll 

tax contribution on wages paid to the average newly hired worker would therefore equal $32 a 

week. Based on the average value of the tax exemption, we estimate that if the 4.5 million 

employees who have been hired from February to May 2010 are employed for the rest of the 

year, employers would be eligible for $5.1 billion in payroll tax savings as a result of the HIRE 

Act. Moreover, if three quarters of the workers remain employed for 52 weeks, which is roughly 

consistent with historical turnover data for new hires, then employers would receive another $3.4 

billion in tax relief with respect to these hires, for a total of $8.5 billion in tax exemptions plus 

tax credits. These potential tax savings will grow over the course of the year as more 

unemployed workers are hired by private sector businesses. 

The final cost to the government may be lower if employers of some qualified workers fail to 

take advantage of the tax exemption and credit. In addition, because the tax exemption reduces 

total compensation costs, private employers that receive the exemption may claim smaller 

income tax deductions, which would decrease the final cost to Treasury. Conversely, the final 

 

8

 Data limitations also prevent us from including workers that reported being employed in the first month but had 

worked less than 40 hours in the previous 60 days. 

5 
cost may exceed this estimate, because, as mentioned, employers may also claim the exemption 

for qualified employees who have not been identified in our sample due to data limitations. 

D. Demographic Characteristics and Industry of Exemption-Eligible Hires 

Using demographic characteristics reported in the CPS, Table 4 compares exemption-eligible 

workers hired since February 2010 with the broader population of unemployed workers along a 

number of dimensions. Prime age workers (ages 25-54 years old) and men represent a larger 

share of exemption-eligible hires than they do of all unemployed workers in general.9 The 

education and race distribution of newly hired workers who are eligible for the HIRE Act tax 

exemption closely mirrors their distributions in the broader population of unemployed workers. 

Table 5 provides a tabulation of the industry of exemption-eligible new hires, showing both their 

new industry and the industry in which they were employed prior to their unemployment. For 

comparison, the third column shows the industry prior to unemployment for all unemployed 

workers. Employers in the construction industry, in particular, have hired a large share of 

workers who are eligible for the HIRE Act tax exemption. Nearly one in five workers who are 

eligible for the exemption have been hired into the construction industry. In general, however, 

the industry distribution of employers who have hired workers eligible for the HIRE Act tax 

exemption is similar to the industry distribution of their newly hired workers prior to their job 

loss, and of the overall population of unemployed workers. 

Conclusion 

Using linked monthly data from the CPS, this report estimates that approximately 4.5 million 

workers were hired from February through May 2010 whose employers were eligible for the 

payroll tax exemption under the HIRE Act. If these employees are employed for the rest of the 

year, employers would be eligible for $5.1 billion in payroll tax savings as a result of the HIRE 

Act. Moreover, if three quarters of the workers remain employed for 52 weeks, which is roughly 

consistent with historical turnover data for new hires, then employers would be eligible for 

another $3.4 billion in tax relief with respect to these hires, for a potential total of $8.5 billion in 

tax exemptions plus tax credits so far. These potential tax savings will rise throughout the year, 

as the HIRE Act applies to workers hired through the end of 2010. The final cost to Treasury 

may be lower than the potential tax savings that are estimated in this report if employers of some 

qualified workers fail to take advantage of the HIRE Act tax exemption and credit. Conversely, 

the final cost may exceed our estimates because, as mentioned, employers may also claim the 

exemption for employees who were out of the labor force and not classified as unemployed for 

two months or longer in the CPS. 

 

9

 These differences are statistically significant at the 5 percent level. 

6 
7 

Data Appendix 

The CPS Rotation Groups 

The CPS is divided into eight representative subsamples, called rotation groups. Housing units 

in each rotation group are interviewed for 4 consecutive months, followed by an 8-month break, 

and then interviewed for a final 4 consecutive months. In any give month, therefore, 

approximately 75 percent of households were interviewed in the preceding month. This report 

uses month-to-month linked CPS data from December 2008 through May 2010 to calculate 

month-to-month labor market transitions ending in January 2009 through to May 2010. 

Two-month linked samples were created by matching surveyed workers in one month to their 

responses in the subsequent month. For example, the January 2010 CPS records were matched 

to February 2010 CPS records, and the February 2010 CPS records were matched to March 2010 

CPS records, and so on. We used the CPS variables HHID HHNUM LINENO to match workers 

across months, as discussed in Madrian and Lefgren (1999) and Feng (2008). For most months 

in our sample, we were able to successfully match the records of 95 percent or more of workers 

that were supposed to be interviewed in two consecutive months. The average sample size of 

workers matched to the consecutive month who reported being unemployed for eight weeks or 

longer in the first month is 3,064. 

Adjustments to CPS final weights: 

Because the sample consists of a subset of CPS respondents who could be matched with their 

response in the following month, the final weights (PWSSWGT) must be adjusted so that the 

estimates are correctly scaled. This is done by applying a factor to the final weights so that the 

sum of the weights equals BLS’s official, non-seasonally adjusted estimate of the unemployed 

population in the initial month. 

Estimating Average Wages 

Respondents are only asked about their usual weekly earnings in their 4th and 8th months in 

sample (called the Outgoing Rotation Group). Therefore, earnings information is available for 

only about 30 percent of the samples used to estimate eligible hires from February to May 2010. 

References 

Feng, Shuaizhang (2008), “Longitudinal matching of recent current population surveys: 

Methods, non-matches and mismatches,” Journal of Economic and Social Measurement, 33: 

241-252 

Madrian, Brigitte C., Lars John Lefgren (1999), “A Note on Longitudinally Matching Current 

Population Survey (CPS) Respondents,” National Bureau of Economic Research Technical 

Working paper 247, November. 
Table 1: Estimated Number of Workers whose Employer Would be Eligible for the 

HIRE Act Tax Exemption if Hired

Share of Unemployed 

Month 

Number 

unemployed 

Ineligible for 

HIRE Act Tax 

Exemption: 

Unemployed 4 

weeks or less 

Potentially Eligible

for HIRE Act Tax 

Exemption: 

Unemployed 

4 and 8 weeks 

Eligible for 

HIRE Act Tax 

Exemption: 

Unemployed 8 

weeks or longer 

Feb 2010 15,991,240 11% 13% 76% 

Mar 2010 15,677,833 11% 9% 80% 

Apr 2010 14,608,924 10% 9% 81% 

May 2010 14,369,220 13% 10% 77% 

Note: The total number of unemployed each month is the official, non-seasonally adjusted 

estimates, as reported by the Bureau of Labor Statistics. See text for description of the 

categorization of the unemployed by eligibility status for the HIRE Act tax exemption. 

 

8 
Table 2: Monthly Transition Rates 

for Workers Unemployed ≥ 8 weeks

Total 

Workers 

Unemployed 

≥ 8 weeks 

in 1st Month 

Employment Status in 2nd Month 

Months 

Private 

ExemptionEligible 

Employment*

Other 

employment**

Still 

unemployed 

Out of 

labor 

force 

Dec, ‘08 to Jan, ‘09 6,465,697 9.3% 2.0% 66.7% 22.0% 

Jan to Feb, 2009 7,973,379 10.3% 2.3% 67.4% 20.1% 

Feb to Mar, 2009 9,014,765 11.0% 2.6% 66.3% 20.0% 

Mar to Apr, 2009 9,829,540 14.2% 3.2% 64.1% 18.5% 

Apr to May, 2009 9,691,569 11.1% 2.2% 67.0% 19.7% 

May to Jun, 2009 9,753,553 11.2% 2.0% 68.7% 18.1% 

Jun to Jul, 2009 9,934,851 11.8% 2.6% 67.3% 18.4% 

Jul to Aug, 2009 10,618,786 10.1% 2.3% 66.6% 20.9% 

Aug to Sep, 2009 10,868,047 11.3% 3.7% 65.7% 19.3% 

Sep to Oct, 2009 11,040,918 10.1% 2.5% 68.1% 19.2% 

Oct to Nov, 2009 10,804,514 10.7% 1.8% 68.6% 18.9% 

Nov to Dec, 2009 10,928,733 7.9% 1.6% 70.6% 19.9% 

Dec, ‘09 to Jan, ‘10 10,821,742 8.3% 1.5% 69.8% 20.4% 

Jan to Feb, 2010 11,904,522 8.9% 1.7% 71.2% 18.2% 

Feb to Mar, 2010 12,201,584 11.4% 2.3% 67.2% 19.1% 

Mar to Apr, 2010 12,546,709 14.1% 2.9% 63.7% 19.4% 

Apr to May, 2010 11,807,334 11.2% 2.9% 66.4% 19.5% 

May to June, 2010 11,013,249 - - - - 

Note: * Exemption-eligible jobs include all private, non-self-employed jobs; ** Other 

employment includes government, self-employment, and employment without pay. 

 

9 
Table 3: Estimated Number of New Hires 

for which Employer is Eligible for HIRE Act Tax Exemption 

Transition months 

New 

 Exemption-Eligible Hires 

Average 

Weekly Earnings*

Feb-10 to Mar-10 1,385,937 $476 

Mar-10 to Apr-10 1,765,519 $536 

Apr-10 to May-10 1,319,394 $524 

Total 4,470,850 $513 

Note: *Average weekly earnings are estimated from the out-going rotation group 

subsample of the CPS. Earnings are reported on the new job in the second month of the 

linked sample (i.e., pertaining to March through May). 

 

10 
Table 4: Demographic Characteristics of New Hires and Unemployed in 2010, 

by HIRE Act Tax Exemption Eligibility 

Eligible for HIRE Act Tax Relief All 

Unemployed 

Feb to 

   Apr 

Feb to 

Mar 

Mar to 

Apr 

Apr to 

May 

Total 

Feb to April 

Gender

 Men 67.9% 68.8% 63.7% 67.0% 61.1% 

 Women 32.1% 31.2% 36.3% 33.0% 38.9% 

Age 

 less than 25 24.8% 19.9% 26.9% 23.5% 24.7% 

 25 to 54 65.7% 70.8% 63.4% 67.1% 61.2% 

 55+ 9.5% 9.3% 9.7% 9.5% 14.1% 

Race

 White 77.8% 80.7% 77.1% 78.7% 74.8% 

 Black 17.0% 13.5% 18.1% 15.9% 18.4% 

 Other .2% 5.8% 4.8% 5.3% 6.8% 

Hispanic origin 23.1% 21.8% 21.2% 22.0% 18.5% 

Education

 Less than H.S. 24.2% 19.9% 17.1% 20.4% 20.6% 

 H.S. diploma 40.3% 39.4% 43.7% 40.9% 38.2% 

 Some college 21.6% 27.2% 27.0% 25.4% 26.2% 

 Bachelor's degree 11.3% 10.9% 8.5% 10.3% 11.4% 

 Beyond college 2.5% 2.7% 3.8% 2.9% 3.6% 

Note: Each panel presents the share of the sample in that row category. For example, 

67.9 percent of the eligible hires from February to March were male and 32.1 percent 

were female, while 61.1 percent of all unemployed workers from February to April were 

male and 38.9 percent were female. 

 

11 
Table 5: Industry of HIRE Act Exemption-Eligible New Hires and Unemployed, 

Total February to April, 2010 

HIRE Act 

 Exemption-Eligible New Hires 

Former 

Industry of All 

Former Industry New Industry Unemployed 

 Construction 22.6% 19.6% 17.1% 

 Manufacturing 11.5% 9.5% 13.1% 

 Retail trade 11.6% 13.4% 12.3% 

 Transportation and utilities 5.1% 4.7% 4.3% 

 Financial activities 3.7% 3.9% 5.3% 

 Professional and business services 12.6% 13.9% 13.2% 

 Educational and health services 8.5% 8.6% 10.3% 

 Leisure and hospitality 11.2% 12.7% 11.7% 

 All other industries 13.1% 13.6% 12.8% 

Note: All other industries include: Agriculture, forestry, fishing, and hunting, mining, 

information, wholesale trade and other services. 

12 
13 

Figure 1: Monthly Transition Rate to Private Exemption-Eligible Employment, 

For Workers Unemployed ≥ 8 weeks 

Note: This chart presents data reported in Table 2. The solid line presents the estimated 

transition rates into private exemption-eligible employment for each month. The dashed 

lines present the estimated transition rate plus and minus one standard error. Standard 

errors are computed using the sample weights provided by the CPS.