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Do Wage Subsidies Increase Employment in Subsidized Firms?

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  • AKI KANGASHARJU

Abstract

This paper examines whether subsidized jobs have contributed to employment in subsidized firms or have merely substituted for non-subsidized ones. The data-set is an unbalanced panel of some 31,000 firms that are followed annually between 1995 and 2002. The analysis is based on difference-in-differences, which is adjusted by regression and matching methods. The results indicate that wage subsidies stimulate employment, and that the magnitude of the effect is as aimed. I also found that subsidies have no sizeable effects on non-subsidized firms of the industry or the geographical area in question. Copyright (c) The London School of Economics and Political Science 2006.

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Bibliographic Info

Article provided by London School of Economics and Political Science in its journal Economica.

Volume (Year): 74 (2007)
Issue (Month): 293 (02)
Pages: 51-67

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Handle: RePEc:bla:econom:v:74:y:2007:i:293:p:51-67

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References

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  3. Takis Venetoklis, 1999. "Process Evaluation of Business Subsidies in Finland. A Quantitative Approach," Research Reports 58, Government Institute for Economic Research Finland (VATT).
  4. Joshua Angrist & Alan Krueger, 1998. "Empirical Strategies in Labor Economics," Working papers 98-7, Massachusetts Institute of Technology (MIT), Department of Economics.
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  6. Lechner, Michael, 1999. "Earnings and Employment Effects of Continuous Off-the-Job Training in East Germany after Unification," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 74-90, January.
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  8. Jeffrey Smith & Petra Todd, 2003. "Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20035, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
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  10. Jeffrey Smith, 2000. "A Critical Survey of Empirical Methods for Evaluating Active Labor Market Policies," UWO Department of Economics Working Papers 20006, University of Western Ontario, Department of Economics.
  11. Saul Lach, 2000. "Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel," NBER Working Papers 7943, National Bureau of Economic Research, Inc.
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  14. J Richardson, 1998. "Do wage subsidies Enhance Employability? Evidence from Australian Youth," CEP Discussion Papers dp0387, Centre for Economic Performance, LSE.
  15. Matz Dahlberg & Anders Forslund, 2005. "Direct Displacement Effects of Labour Market Programmes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 475-494, 09.
  16. Takis Venetoklis, 2001. "Business Subsidies and Bureaucratic Behaviour - A Revised Approach," Research Reports 83, Government Institute for Economic Research Finland (VATT).
  17. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," NBER Working Papers 6699, National Bureau of Economic Research, Inc.
  18. Gary Burtless, 1985. "Are targeted wage subsidies harmful? Evidence from a wage voucher experiment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 39(1), pages 105-114, October.
  19. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
  20. Klette, Tor Jakob & Møen, Jarle, 2011. "R&D investment responses to R&D subsidies: A theoretical analysis and a microeconometric study," Discussion Papers 2011/15, Department of Business and Management Science, Norwegian School of Economics.
  21. Stephen G. Donald & Kevin Lang, 2007. "Inference with Difference-in-Differences and Other Panel Data," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 221-233, May.
  22. James Heckman & Lance Lochner & Ricardo Cossa, 2002. "Learning-By-Doing Vs. On-the-Job Training: Using Variation Induced by the EITC to Distinguish Between Models of Skill Formation," NBER Working Papers 9083, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. David C. Maré, 2005. "Indirect Effects of Active Labour Market Policies," Working Papers 05_01, Motu Economic and Public Policy Research.
  2. Sabine Engelmann & Beate Schirwitz & Marcel Thum, 2009. "Erstellung von Unbedenklichkeitsbescheinigungen im Bereich der öffentlich geförderten Beschäftigung," ifo Dresden Studien, Ifo Institute for Economic Research at the University of Munich, number 47, October.
  3. Christian Hohendanner, 2011. "Ein-Euro-Jobs und regulaere Beschaeftigung," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 231(2), pages 210-246, April.
  4. Mika Haapanen & Anu Tokila & Jari Ritsilä, 2005. "When are investment subsidies crucial for investments?," ERSA conference papers ersa05p466, European Regional Science Association.
  5. Antonio Estache & Elena Ianchovichina & Robert Bacon & Ilhem Salamon, 2013. "Infrastructure and Employment Creation in the Middle East and North Africa," World Bank Publications, The World Bank, number 12237, July.
  6. Torben Andersen & Michael Svarer, 2007. "Flexicurity – Labour Market Performance in Denmark," CESifo Working Paper Series 2108, CESifo Group Munich.
  7. Bartolucci, Francesco & Grilli, Leonardo & Pieroni, Luca, 2012. "Estimating dynamic causal effects with unobserved confounders: a latent class version of the inverse probability weighted estimator," MPRA Paper 43430, University Library of Munich, Germany.
  8. Moczall, Andreas, 2013. "Subsidies for substitutes? : New evidence on deadweight loss and substitution effects of a wage subsidy for hard-to-place job-seekers," IAB Discussion Paper 201305, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  9. Ianchovichina, Elena & Estache, Antonio & Foucart, Renaud & Garsous, Grégoire & Yepes, Tito, 2013. "Job Creation through Infrastructure Investment in the Middle East and North Africa," World Development, Elsevier, vol. 45(C), pages 209-222.
  10. Takis Venetoklis, 2004. "An Evaluation of Wage Subsidy Programs to SMEs Utilising Propensity Score Matching," Research Reports 106, Government Institute for Economic Research Finland (VATT).
  11. Nabanita Datta Gupta & Mona Larsen & Lars Brink Thomsen, 2013. "Do wage subsidies for disabled workers result in deadweight loss? – evidence from the Danish Flexjob scheme," Economics Working Papers 2013-24, School of Economics and Management, University of Aarhus.
  12. Bukowski, Maciej & Lewandowski, Piotr & Koloch, Grzegorz & Baranowska, Anna & Magda, Iga & Szydlowski, Arkadiusz & Bober, Magda & Bieliński, Jacek & Zawistowski, Julian & Sarzalska, Malgorzata, 2008. "Employment in Poland 2007: Security on flexible labour market," MPRA Paper 14284, University Library of Munich, Germany.

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