Employment impacts of the Common Agricultural Policy in Eastern Germany – A regional panel data 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 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-difference 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 direct payments for livestock, investment aid and transfers to less favoured areas had a zero marginal employment effect. Increases in direct area payments on average led to labour shedding, as simultaneous decoupling made transfer payments independent of factor allocation. Spending on modern technologies in processing and marketing also led to job losses in agriculture. Agro-environmental measures, on the other hand, kept labour intensive technologies in production or induced them. In light of the recent “health check” agreements on additional modulation, this analysis calls into question whether an expansion of existing second pillar measures is a reasonable way to use the modulated funds.