How agricultural subsidies shape local employment: evidence from the French support policies for mountain areas

Do place-based farm subsidies reshape rural labour markets beyond agriculture? We estimate the causal impact of France's mountain-area support (MA) scheme within the Less Favoured Areas (LFA) framework on municipal employment over 1962–1990, combining entropy balancing with an extended two-way fixed-effects estimator on 23,651 municipalities. We find that MA classification reduces total agricultural employment by roughly 15%, driven by an 18% decline in self-employment as farms consolidate and expand. Salaried farm jobs rise by about 16%, but this increase falls well short of offsetting the contraction of family labour. We also document positive spillovers to neighbouring municipalities and inter-sectoral linkages beyond agriculture: trade and services expand within treated municipalities, while agri-food and construction employment rises in nearby untreated areas. Treatment heterogeneity indicates stronger effects where farms are mid-sized and market access is limited, suggesting the programme compensates for labor market thinness in remote areas rather than complementing pre-existing urban advantages. Overall, a policy designed to sustain farming in disadvantaged areas appears to have reconfigured both the composition and the spatial distribution of rural employment.