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Do Business Subsidies Facilitate Employment Growth?


  • Koski, Heli
  • Pajarinen, Mika


We use data from 15508 Finnish companies with 10 or more employees for the years 2003-2008 to explore the relationship between employment growth and three endogenously determined business subsidy types (i.e. employment subsidy, R&D subsidy and other business subsidies). We find a positive contemporary relationship between all business subsidy types and employment growth. Our findings suggest that R&D subsidies further contribute to the firms employment for one year after and employment and other subsidies for three years after the reception of subsidies. After that, the differences between the subsidized and non-subsidized firms vanish. We further find, in line with the empirical studies of Harrison et al. (2008) and Hall et al. (2008), that both product innovation and sales growth from a firms old products contribute to the firms employment growth. Process innovation, instead, does not seem to have any significant effect on employment.

Suggested Citation

  • Koski, Heli & Pajarinen, Mika, 2011. "Do Business Subsidies Facilitate Employment Growth?," Discussion Papers 1235, The Research Institute of the Finnish Economy.
  • Handle: RePEc:rif:dpaper:1235

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    References listed on IDEAS

    1. Brown, Alessio J.G. & Merkl, Christian & Snower, Dennis J., 2011. "Comparing the effectiveness of employment subsidies," Labour Economics, Elsevier, vol. 18(2), pages 168-179, April.
    2. Peters, Bettina, 2004. "Employment Effects of Different Innovation Activities: Microeconometric Evidence," ZEW Discussion Papers 04-73, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Giovanni Dosi & Giorgio Fagiolo & Andrea Roventini, 2008. "The microfoundations of business cycles: an evolutionary, multi-agent model," Journal of Evolutionary Economics, Springer, vol. 18(3), pages 413-432, August.
    4. Girma, Sourafel & Görg, Holger & Strobl, Eric & Walsh, Frank, 2008. "Creating jobs through public subsidies: An empirical analysis," Labour Economics, Elsevier, vol. 15(6), pages 1179-1199, December.
    5. Harrison, Rupert & Jaumandreu, Jordi & Mairesse, Jacques & Peters, Bettina, 2014. "Does innovation stimulate employment? A firm-level analysis using comparable micro-data from four European countries," International Journal of Industrial Organization, Elsevier, vol. 35(C), pages 29-43.
    6. Venetoklis, Takis & Kangasharju, Aki, 2002. "Business Subsidies and Employment of Firms: Overall Evaluation and Regional Extension," Discussion Papers 268, VATT Institute for Economic Research.
    7. Jacques Mairesse, 2008. "Employment, innovation, and productivity: evidence from Italian microdata," Industrial and Corporate Change, Oxford University Press, vol. 17(4), pages 813-839, August.
    8. Koski, Heli & Pajarinen, Mika, 2010. "Access to Business Subsidies: What Explains Complementarities and Persistency?," Discussion Papers 1226, The Research Institute of the Finnish Economy.
    9. Doms, Mark & Dunne, Timothy & Roberts, Mark J., 1995. "The role of technology use in the survival and growth of manufacturing plants," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 523-542, December.
    10. Betcherman, Gordon & Daysal, N. Meltem & Pagés, Carmen, 2010. "Do employment subsidies work? Evidence from regionally targeted subsidies in Turkey," Labour Economics, Elsevier, vol. 17(4), pages 710-722, August.
    11. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, February.
    12. Brouwer, Erik & Kleinknecht, Alfred & Reijnen, Jeroen O N, 1993. "Employment Growth and Innovation at the Firm Level," Journal of Evolutionary Economics, Springer, vol. 3(2), pages 153-159, May.
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    Cited by:

    1. Wim Naudé, 2011. "Foreign Aid for Innovation: The Missing Ingredient in Private Sector Development?," Working Papers 2011/35, Maastricht School of Management.
    2. Heli Koski & Mika Pajarinen, 2013. "The role of business subsidies in job creation of start-ups, gazelles and incumbents," Small Business Economics, Springer, vol. 41(1), pages 195-214, June.

    More about this item


    public subsidies; technology policy; employment growth; Finland;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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