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Do Wage-subsidies Increase Employment in Firms?

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  • Venetoklis, Takis
  • Kangasharju, Aki

Abstract

The literature evaluating active labour market programmes concentrates on the subsequent labour market performance of the unemployed work force that has undergone training or has spent a certain period in a subsidised job. The effects of programmes on firms have rarely been evaluated. Here we examine whether subsidised jobs have contributed to the employment of firms or merely substituted for non-subsidised ones. We also consider whether other firms have suffered or benefited from subsidies given to firms in a particular industry or geographical location. We analyse a large sample of firms, taken from the registers compiled by the Finnish Tax Authority. Our data set is an unbalanced panel of some 26,000 firms that are followed annually from 1995-1999. Our results indicate that wage subsidies have increased employment in subsidised firms, but the effect has not been large enough. Public subsidies appear to substitute private employment expenditure. However, subsidised firms have not harmed other firms in the same industry or geographical area. In other words, we find a substitution effect, but not a displacement effect.

Suggested Citation

  • Venetoklis, Takis & Kangasharju, Aki, 2003. "Do Wage-subsidies Increase Employment in Firms?," Discussion Papers 304, VATT Institute for Economic Research.
    • Handle: RePEc:fer:dpaper:304
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    1. Jeffrey Smith, 2000. "A Critical Survey of Empirical Methods for Evaluating Active Labor Market Policies," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 136(III), pages 247-268, September.
    2. Richard Blundell & Monica Costa Dias, 2000. "Evaluation methods for non-experimental data," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 427-468, January.
    3. Klette, Tor Jakob & Møen, Jarle, 2011. "R&D investment responses to R&D subsidies: A theoretical analysis and a microeconometric study," Discussion Papers 2011/15, Norwegian School of Economics, Department of Business and Management Science.
    4. Saul Lach, 2002. "Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 369-390, December.
    5. Venetoklis, Takis, 1999. "Process Evaluation of Business Subsidies in Finland. A Quantitative Approach," Research Reports 58, VATT Institute for Economic Research.
    6. John P Martin, 1998. "What Works Among Active Labour Market Policies: Evidence from OECD Countries' Experiences," RBA Annual Conference Volume (Discontinued), in: Guy Debelle & Jeff Borland (ed.),Unemployment and the Australian Labour Market, Reserve Bank of Australia.
    7. Robert G. Fay, 1996. "Enhancing the Effectiveness of Active Labour Market Policies: Evidence from Programme Evaluations in OECD Countries," OECD Labour Market and Social Policy Occasional Papers 18, OECD Publishing.
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    Cited by:

    1. Kluve, Jochen & Fertig, Michael & Jacobi, Lena & Nima, Leonhard & Schaffner, Sandra & Schmidt, Christoph M. & Card, David & Góra, Marek & Jensen, Peter & Leetmaa, Reelika & Patacchini, Eleonora & van , 2005. "Study on the effectiveness of ALMPs: Research project for the European Commission, DG Employment, Social Affairs and Equal Opportunities. Final report," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 69929, Fall.
    2. International Monetary Fund, 2007. "Finland: Selected Issues," IMF Staff Country Reports 2007/278, International Monetary Fund.
    3. David C Maré, 2005. "Indirect Effects of Active Labour Market Policies," HEW 0509004, University Library of Munich, Germany.
    4. Nabanita Datta Gupta & Mona Larsen & Lars Thomsen, 2015. "Do wage subsidies for disabled workers reduce their non-employment? - evidence from the Danish Flexjob scheme," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-26, December.
    5. Venetoklis, Takis, 2004. "An Evaluation of Wage Subsidy Programs to SMEs Utilising Propensity Score Matching," Research Reports 106, VATT Institute for Economic Research.
    6. Nabanita Datta Gupta & Mona Larsen & Lars Brink Thomsen, 2013. "Do wage subsidies for disabled workers result in deadweight loss? – evidence from the Danish Flexjob scheme," Economics Working Papers 2013-24, Department of Economics and Business Economics, Aarhus University.

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