ineligible industries. For individuals who work in an eligible industry in any given quarter, but did not work in an eligible industry in the previous quarter, figure 7 plots how many individuals were in each of the following three categories (i) working in an ineligible durable goods manufacturing industry with access to IMSS, (ii) working in any other industry – nondurable goods manufacturing or outside manufacturing, or (iii) not employed – including the unemployed and individuals out of the labor force. An average of about 840 people start to work in an eligible industry each quarter and about 130 of them worked in an eligible industry and had access to IMSS during the previous quarter, a number that is quite stable over time. I thus do not see evidence that eligible industries are increasingly hiring employees away from ineligible industries after the wage subsidy program.

I also examine whether eligible industries are increasingly hiring individuals who were laid off in ineligible industries. In select quarters, the ENOE included an amplified questionnaire that asks individuals if they lost their job in the past year, extending the panel information about any given individual beyond five quarters. For individuals who report having lost a job with access to IMSS in an ineligible industry during the past year, figure 8 plots the percentage of individuals working in an eligible industry where they have access to IMSS, for the quarter where the amplified questionnaire was applied and for up to four quarters following this quarter. The initial quarter includes only 21 individuals who report having lost their job with access to IMSS in an ineligible industry during the past year, on average, and the number of individuals drops each consecutive quarter due to the rotating panel nature of the ENOE, containing only 4 individuals on average four quarters later. Although based on very few individuals, figure 8 suggests that less than 10 percent of individuals who lose their job with access to IMSS in an ineligible industry get hired in an eligible industry in subsequent quarters and that this small percentage does not increase in quarters after the wage subsidy program.<sup>12</sup> The patterns in the ENOE data thus do not suggest that the wage subsidy program had displacement effects on ineligible industries.

# **4.7 Through which channel did the wage subsidies increase employment?**

As a final exercise, I use ENOE data to shed light on the channel through which the wage subsidies increased employment. The intention of the program was to allow firms to keep workers with job‐ specific skills, thus eliminating search and training costs during the recovery. However, the estimated effect on employment, while positive, is not statistically significant during the program’s duration. Larger and statistically significant effects only emerge after the program ended. One possible explanation is that although the program did not limit layoffs during the crisis, it affected which types of workers firms kept vs. let go. The program may have allowed firms to keep the workers with the most specialized and relevant skills in greater proportion than firms in ineligible industries.

> 12 On average, four quarters following the quarter when they report having lost their job with access to IMSS in an ineligible industry, most individuals work in an industry outside durable goods manufacturing (47 percent), remain unemployed (29 percent), or work in an ineligible industry again (16 percent). Only 8 percent work in an eligible industry.

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