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Future Versus Today’s Improvements: The Trade-off of Place-Based Policies

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  • Max Brès
  • Philipp Kircher
  • David Koll

Abstract

This paper provides causal evidence on the impact of subsidy re-allocation between high technology sectors and low-skill sectors on local labor markets. We exploit a policy targeting under-performing employment areas, France’s Aides à Finalité Régionale, which relaxes rules governing the allocation of firm subsidies while keeping their level constant. In response, policy makers re-allocate subsidies away from research and development to mainly low-skilled manufacturing and service sectors. It triggers a persistent improvement of employment, mainly through increased low-skilled manufacturing employment and at the expense of R&D related occupations. In the long term, though, labor income and productivity decrease. Finally, at the individual level, workers employed in manufacturing at the time of the treatment benefit on average of 2% higher hourly wage even 10 years after the policy was lifted.

Suggested Citation

  • Max Brès & Philipp Kircher & David Koll, 2024. "Future Versus Today’s Improvements: The Trade-off of Place-Based Policies," CRC TR 224 Discussion Paper Series crctr224_2024_573, University of Bonn and University of Mannheim, Germany.
  • Handle: RePEc:bon:boncrc:crctr224_2024_573
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    References listed on IDEAS

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    1. Hirvonen, Johannes & Stenhammar, Aapo & Tuhkuri, Joonas, 2022. "New Evidence on the Effect of Technology on Employment and Skill Demand," ETLA Working Papers 93, The Research Institute of the Finnish Economy.
    2. Jaedo Choi & Andrei A. Levchenko, 2021. "The Long-Term Effects of Industrial Policy," NBER Working Papers 29263, National Bureau of Economic Research, Inc.
    3. Christina Gathmann & Uta Schönberg, 2010. "How General Is Human Capital? A Task-Based Approach," Journal of Labor Economics, University of Chicago Press, vol. 28(1), pages 1-49, January.
    4. Patrick Kline & Enrico Moretti, 2014. "People, Places, and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 629-662, August.
    5. Siegloch, Sebastian & Wehrhöfer, Nils & Etzel, Tobias, 2021. "Direct, spillover and welfare effects of regional firm subsidies," ZEW Discussion Papers 21-038, ZEW - Leibniz Centre for European Economic Research.
    6. Gabriel Chodorow-Reich, 2014. "The Employment Effects of Credit Market Disruptions: Firm-level Evidence from the 2008-9 Financial Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 1-59.
    7. Hirvonen, Johannes & Stenhammar, Aapo & Tuhkuri, Joonas, 2022. "Policy Brief: New Evidence on the Effect of Technology on Employment and Skill Demand," ETLA Brief 108, The Research Institute of the Finnish Economy.
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    More about this item

    Keywords

    subsidy allocation; place-based policies; manufacturing; R&D; employment and wages; underperforming areas;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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