Regional employment impacts of Common Agricultural Policy measures in Eastern Germany: A difference-in-differences approach
Politicians and farm lobbyists frequently use the argument that agricultural policy is necessary to safeguard jobs in agriculture. We explore whether this is true by conducting an econometric ex-post evaluation of the European Union’s Common Agricultural Policy (CAP) in the three East German States Brandenburg, Saxony, and Saxony-Anhalt. Whereas previous studies have employed descriptive statistics or qualitative methods and have looked at single policy instruments in isolation, we apply a difference-in-differences estimator to analyse the employment effects of the entire portfolio of CAP measures simultaneously. Based on panel data at the county level, we find that investment aids and transfers to less favoured areas had a zero marginal employment effect. We present evidence that full decoupling of direct payments in 2005 led to labour shedding, as it made transfer payments independent of factor allocation. Spending on modern technologies in processing and marketing and measures aimed at the development of rural areas led to job losses in agriculture. Agri-environmental measures, on the other hand, kept labour intensive technologies in production or induced them. This analysis calls into question whether an expansion of existing second pillar measures is a reasonable way to use funds modulated away from the first pillar.
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