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(No) Effects of Subsidizing the First Employee: Evidence of a Low Take-up Puzzle Among Firms

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  • Nivala, Annika

Abstract

Finland had a large regional wage subsidy for hiring the first employee in 2007–2011. In this paper, I show that the take-up of the subsidy was very low: only 2% firms that became employers used the subsidy. The subsidy was restricted to hiring a full-time employee, which reduced the take-up. However, even among full-time employers the take-up rate was only 6%. Hence, a large majority of firms left thousands of euros on the table by not using the subsidy. Based on the descriptive evidence, the low take-up seems to be explained by low awareness in addition to costs of using the subsidy. Using a regional difference-in-differences identification strategy, I estimate the effect of the subsidy on the probability of becoming an employer and other firm outcomes. As a consequence of the low take-up, the estimated effect is zero.

Suggested Citation

  • Nivala, Annika, 2024. "(No) Effects of Subsidizing the First Employee: Evidence of a Low Take-up Puzzle Among Firms," Working Papers 166, VATT Institute for Economic Research.
    • Handle: RePEc:fer:wpaper:166
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    More about this item

    Keywords

    Business subsidies; Wage subsidies; Firm behavior; Labor demand; Entrepreneurship; Small Business; Business taxation and regulation; H25; H32; J23; J38; M51; fi=Elinkeinopolitiikka|sv=Näringspolitik|en=Industrial and economic policy|; fi=Työmarkkinat|sv=Arbetsmarknad|en=Labour markets|;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

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