An Evaluation of Wage Subsidy Programs to SMEs Utilising Propensity Score Matching
We evaluate direct wage subsidy programs to Finnish SMEs utilising as the unit of interest the firm and its characteristics. In estimating Average Treatment effects on the Treated firms (ATT) we apply recent techniques of propensity score matching algorithms developed by Becker and Ichino (2002) together with Difference in Differences (DiD) estimations. We define our outcome indicator as the net salary costs growth of the treated firms for up to two years after the first receipt of the wage subsidy. We find that, on average, the subsidised firms compared to the non-subsidised ones have higher payroll costs during the first year after the receipt of wage subsidies. Also, the first post-subsidies-year average net payroll growth comes out larger than the estimated average wages spent for the subsidised workers only. This may indicate that firms employ the subsidised workers for at least one year after the subsidised period and perhaps employ, in addition, extra staff. Although still positive, the net aggregate salary costs growth measured two years after the receipt of subsidies diminishes and seems not to cover all of the subsidised workers? salary costs. One could interpret these results as initial signs of lay-offs of the subsidised workers and/or of the extra staff employed the previous period. From a pure economic efficiency as well as a distributive justice point of view this two year employment spell for the previously unemployed could be considered as an adequate program effect. On the contrary, the diminishing salary costs growth already during the second year after the subsidies receipt might indicate non-sustainable positive wage subsidies effects even on a short term basis. Evaluation, employment, wage subsidies, estimation methods
|Date of creation:||05 Feb 2004|
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- Jochen Kluve & Hartmut Lehmann & Christoph M. Schmidt, 2002. "Disentangling Treatment Effects of Polish Active Labor Market Policies: Evidence from Matched Samples," William Davidson Institute Working Papers Series 447, William Davidson Institute at the University of Michigan.
- Kluve, Jochen & Lehmann, Hartmut & Schmidt, Christoph M., 2001. "Disentangling Treatment Effects of Polish Active Labor Market Policies: Evidence from Matched Samples," IZA Discussion Papers 355, Institute for the Study of Labor (IZA).
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- Petra E. Todd & Jeffrey A. Smith, 2001. "Reconciling Conflicting Evidence on the Performance of Propensity-Score Matching Methods," American Economic Review, American Economic Association, vol. 91(2), pages 112-118, May.
- Rajeev H. Dehejia & Sadek Wahba, 1998. "Causal Effects in Non-Experimental Studies: Re-Evaluating the Evaluation of Training Programs," NBER Working Papers 6586, National Bureau of Economic Research, Inc.
- Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
- Rajeev H. Dehejia & Sadek Wahba, 1998. "Propensity Score Matching Methods for Non-experimental Causal Studies," NBER Working Papers 6829, National Bureau of Economic Research, Inc.
- Czarnitzki, Dirk & Fier, Andreas, 2002. "Do Innovation Subsidies Crowd Out Private Investment? Evidence from the German Service Sector," ZEW Discussion Papers 02-04, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Takis Venetoklis & Aki Kangasharju, 2002. "Business Subsidies and Employment of Firms: Overall Evaluation and Regional Extension," Discussion Papers 268, Government Institute for Economic Research Finland (VATT).
- James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 261-294. Full references (including those not matched with items on IDEAS)
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