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Do Wage-subsidies Increase Employment in Firms?

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Author Info
Takis Venetoklis
Aki Kangasharju

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Abstract

The literature evaluating active labour market programmes concentrates on the subsequent labour market performance of the unemployed work force that has undergone training or has spent a certain period in a subsidised job. The effects of programmes on firms have rarely been evaluated. Here we examine whether subsidised jobs have contributed to the employment of firms or merely substituted for non-subsidised ones. We also consider whether other firms have suffered or benefited from subsidies given to firms in a particular industry or geographical location. We analyse a large sample of firms, taken from the registers compiled by the Finnish Tax Authority. Our data set is an unbalanced panel of some 26,000 firms that are followed annually from 1995-1999. Our results indicate that wage subsidies have increased employment in subsidised firms, but the effect has not been large enough. Public subsidies appear to substitute private employment expenditure. However, subsidised firms have not harmed other firms in the same industry or geographical area. In other words, we find a substitution effect, but not a displacement effect.

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Paper provided by Government Institute for Economic Research (VATT) in its series VATT Discussion Papers with number 304.

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Date of creation: 19 May 2003
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Handle: RePEc:fer:dpaper:304

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Related research
Keywords: Evaluation employment wage subsidies

Find related papers by JEL classification:
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. 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. [Downloadable!]
  2. James J. Heckman, 2001. "Micro Data, Heterogeneity, and the Evaluation of Public Policy: Nobel Lecture," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 673-748, August. [Downloadable!] (restricted)
  3. John P Martin, 1998. "What Works Among Active Labour Market Policies: Evidence from OECD Countries' Experiences," RBA Annual Conference Volume, in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia. [Downloadable!]
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  4. Takis Venetoklis, 1999. "Process Evaluation of Business Subsidies in Finland. A Quantitative Approach," VATT Research Reports 58, Government Institute for Economic Research (VATT). [Downloadable!]
  5. 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. [Downloadable!] (restricted)
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  6. Heckman, James J. & Lalonde, Robert J. & Smith, Jeffrey A., 1999. "The economics and econometrics of active labor market programs," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 31, pages 1865-2097 Elsevier. [Downloadable!] (restricted)
  7. Takis Venetoklis, 2001. "Business Subsidies and Bureaucratic Behaviour," VATT Research Reports 79, Government Institute for Economic Research (VATT). [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mika Haapanen & Anu Tokila & Jari Ritsilä, 2005. "When are investment subsidies crucial for investments?," ERSA conference papers ersa05p466, European Regional Science Association. [Downloadable!]
  2. Takis Venetoklis, 2004. "An Evaluation of Wage Subsidy Programs to SMEs Utilising Propensity Score Matching," VATT Research Reports 106, Government Institute for Economic Research (VATT). [Downloadable!]
  3. David C. Maré, 2005. "Indirect Effects of Active Labour Market Policies," Working Papers 05_01, Motu Economic and Public Policy Research. [Downloadable!]
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