Can employment subsidies save jobs? Evidence from a shipbuilding city in South Korea

We evaluate the effectiveness of employment subsidies when used as a countermeasure to severe recessions. In 2013 and 2014, the government of South Korea implemented an emergency policy called the Special Employment Promotion Zone program in a medium-sized city suffering a prolonged slump after the 2008 global crisis affected the city's major industry, shipbuilding. Under the program, employers could receive subsidies to cover a significant part of the wages for retaining their employees or to create new jobs for local residents. With the synthetic control method, we found that the program was not fully utilized in its first year and had little impact on employment. In the second year, the program increased the employment rate, mainly in the non-manufacturing sector. The magnitude of the effect was small, but the effect persisted after the end of the program.