IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp3168.html
   My bibliography  Save this paper

Creating Jobs Through Public Subsidies: An Empirical Analysis

Author

Listed:
  • Girma, Sourafel

    (University of Nottingham)

  • Görg, Holger

    (Kiel Institute for the World Economy)

  • Strobl, Eric

    (University of Bern)

  • Walsh, Frank

    (University College Dublin)

Abstract

This paper analyses the impact of government grants on labour demand using plant level data for manufacturing industry in Ireland. Our data consists of a large sample of plants and their complete grant history. We provide evidence that additional employment is created over and above the level that would have prevailed in the absence of grant payments. We also find differences in the employment response to subsidies between domestic and foreign-owned plants, with the former creating more additional jobs per euro of grant payment. Simple cost-benefit analysis reveals that a large part of the costs of grants appears to be recouped in additional wage streams under reasonable assumptions.

Suggested Citation

  • Girma, Sourafel & Görg, Holger & Strobl, Eric & Walsh, Frank, 2007. "Creating Jobs Through Public Subsidies: An Empirical Analysis," IZA Discussion Papers 3168, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3168
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp3168.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Holger Görg & Eric Strobl, 2016. "Multinational companies and indigenous development: An empirical analysis," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 17, pages 305-322, World Scientific Publishing Co. Pte. Ltd..
    2. Brendan Walsh, 2004. "The Transformation of the Irish Labour Market - 1980-2003," Working Papers 200412, School of Economics, University College Dublin.
    3. Luís M B Cabral & José Mata, 2003. "On the Evolution of the Firm Size Distribution: Facts and Theory," American Economic Review, American Economic Association, vol. 93(4), pages 1075-1090, September.
    4. Nickell, S.J., 1987. "Dynamic models of labour demand," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 9, pages 473-522, Elsevier.
    5. Phelps, Edmund S, 1994. "Low-Wage Employment Subsidies versus the Welfare State," American Economic Review, American Economic Association, vol. 84(2), pages 54-58, May.
    6. Holger Görg & Eric Strobl, 2016. "Multinational Companies, Technology Spillovers and Plant Survival," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT, chapter 16, pages 289-303, World Scientific Publishing Co. Pte. Ltd..
    7. Brendan M. Walsh, 2004. "The transformation of the Irish labour market : 1980-2003," Open Access publications 10197/1542, School of Economics, University College Dublin.
    8. Ann E. Harrison & Margaret S. McMillan, 2022. "Does direct foreign investment affect domestic credit constraints?," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 7, pages 153-180, World Scientific Publishing Co. Pte. Ltd..
    9. Bulow, Jeremy I & Summers, Lawrence H, 1986. "A Theory of Dual Labor Markets with Application to Industrial Policy,Discrimination, and Keynesian Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 4(3), pages 376-414, July.
    10. Honohan, Patrick, 1998. "Key issues of Cost-Benefit Methodology for Irish Industrial Policy," Research Series, Economic and Social Research Institute (ESRI), number GRS172.
    11. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 819-863.
    12. Girma, Sourafel & Gorg, Holger & Strobl, Eric, 2007. "The effect of government grants on plant level productivity," Economics Letters, Elsevier, vol. 94(3), pages 439-444, March.
    13. Barry, Frank & Bradley, John, 1997. "FDI and Trade: The Irish Host-Country Experience," Economic Journal, Royal Economic Society, vol. 107(445), pages 1798-1811, November.
    14. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    15. Holden, Darryl R & Swales, J K, 1995. "The Additionality, Displacement and Substitution Effects of Factor Subsidies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 42(2), pages 113-126, May.
    16. Holger Görg & Eric Strobl, 2016. "‘Footloose’ Multinationals?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 6, pages 95-113, World Scientific Publishing Co. Pte. Ltd..
    17. Snower, Dennis J, 1994. "Converting Unemployment Benefits into Employment Subsidies," American Economic Review, American Economic Association, vol. 84(2), pages 65-70, May.
    18. Nicholas Kaldor, 1936. "Wage Subsidies as a Remedy for Unemployment," Journal of Political Economy, University of Chicago Press, vol. 44(6), pages 721-721.
    19. Helena Lenihan, 2004. "Evaluating Irish industrial policy in terms of deadweight and displacement: a quantitative methodological approach," Applied Economics, Taylor & Francis Journals, vol. 36(3), pages 229-252.
    20. Paul Foley, 1992. "Local Economic Policy and Job Creation: A Review of Evaluation Studies," Urban Studies, Urban Studies Journal Limited, vol. 29(3-4), pages 557-598, May.
    21. Malcomson, James M., 1999. "Individual employment contracts," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 35, pages 2291-2372 Elsevier.
    22. Breen, R. & Halpin, B., 1989. "Subsidising Jobs: An Evaluation of the Employment Incentive Scheme," Research Series, Economic and Social Research Institute (ESRI), number GRS144.
    23. STROBL, Eric & WALSH, Frank, 2003. "Dealing with monopsony power: the case for using employment subsidies," LIDAM Discussion Papers CORE 2003079, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    24. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    25. Holger Görg & Eric Strobl, 2007. "The Effect of R&D Subsidies on Private R&D," Economica, London School of Economics and Political Science, vol. 74(294), pages 215-234, May.
    26. Girma, Sourafel & Gorg, Holger & Strobl, Eric, 2007. "The effects of government grants on plant survival: A micro-econometric analysis," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 701-720, August.
    27. Frances Ruane & Ali Ugur, 2002. "Foreign Direct Investment And Productivity Spillovers In The Irish Manufacturing Industry: Evidence From Firm Level Panel Data," Trinity Economics Papers 20026, Trinity College Dublin, Department of Economics.
    28. Picard, Pierre M., 2001. "Job additionality and deadweight spending in perfectly competitive industries: the case for optimal employment subsidies," Journal of Public Economics, Elsevier, vol. 79(3), pages 521-541, March.
    29. David Roodman, 2006. "How to Do xtabond2," North American Stata Users' Group Meetings 2006 8, Stata Users Group.
    30. Holger Görg & Eric Strobl, 2006. "Do Government Subsidies Stimulate Training Expenditure? Microeconometric Evidence from Plant-Level Data," Southern Economic Journal, John Wiley & Sons, vol. 72(4), pages 860-876, April.
    31. Wren, Colin, 2003. "Informational Rents and Discretionary Industrial Assistance," Royal Economic Society Annual Conference 2003 222, Royal Economic Society.
    32. Layard, P R G & Nickell, S J, 1980. "The Case for Subsidising Extra Jobs," Economic Journal, Royal Economic Society, vol. 90(357), pages 51-73, March.
    33. Aidan Meyler & Eric Strobl, 2000. "Job Generation and Regional Industrial Policy in Ireland," The Economic and Social Review, Economic and Social Studies, vol. 31(2), pages 111-128.
    34. Daniel S. Hamermesh, 1993. "Labor Demand and the Source of Adjustment Costs," NBER Working Papers 4394, National Bureau of Economic Research, Inc.
    35. Frances Ruane & Ali Uğur, 2005. "Foreign direct investment and productivity spillovers in Irish manufacturing industry: evidence from plant level panel data," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(1), pages 53-66.
    36. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    37. H Lenihan, 1999. "An Evaluation of a Regional Development Agency's Grants in Terms of Deadweight and Displacement," Environment and Planning C, , vol. 17(3), pages 303-318, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sourafel Girma & Holger Görg & Aoife Hanley & Eric Strobl, 2010. "The effect of grant receipt on start-up size: Evidence from plant level data," Journal of International Entrepreneurship, Springer, vol. 8(4), pages 371-391, December.
    2. Frank Barry & Holger Gorg & Eric Strobl, 2005. "Foreign direct investment and wages in domestic firms in Ireland: Productivity spillovers versus labour-market crowding out," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 12(1), pages 67-84.
    3. Mark Cassidy & Eric Strobl, 2004. "Subsidizing Industry: An Empirical Analysis of Irish Manufacturing," Journal of Industry, Competition and Trade, Springer, vol. 4(2), pages 95-107, June.
    4. Frantisek TURNOVEC, 2009. "Council, Commission and European Parliament Influence in European Union Decision Making," EcoMod2009 21500089, EcoMod.
    5. Frank Barry & Holger Görg & Eric Strobl, 2004. "Foreign direct investment, agglomerations, and demonstration effects: An empirical investigation," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 140(3), pages 583-600, September.
    6. Barrios, Salvador & Bertinelli, Luisito & Strobl, Eric, 2006. "Coagglomeration and spillovers," Regional Science and Urban Economics, Elsevier, vol. 36(4), pages 467-481, July.
    7. Richard Harris & John Moffat, 2020. "The impact of product subsidies on plant‐level total factor productivity in Britain, 1997–2014," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(4), pages 387-403, September.
    8. Jean-Pierre Allegret & Sana Azzabi, 2014. "Intégration financière internationale et croissance économique dans les pays émergents et en développement : le canal du développement financier," Revue d’économie du développement, De Boeck Université, vol. 22(3), pages 27-68.
    9. Aiyar, Shekhar & Calomiris , Charles W & Wieladek, Tomasz, 2012. "Does macropru leak? Evidence from a UK policy experiment," Bank of England working papers 445, Bank of England.
    10. Girma, Sourafel & Görg, Holger & Strobl, Eric, 2003. "Government Grants, Plant Survival and Employment Growth: A Micro-Econometric Analysis," IZA Discussion Papers 838, Institute of Labor Economics (IZA).
    11. Medina-Durango, Carlos Alberto & Posso Suárez, Christian Manuel & Tamayo, Jorge A. & Monsalve, Emma, 2012. "Dinámica de la demanda laboral en la industria manufacturera colombiana 1993-2009 : una estimación panel VAR," Chapters, in: Arango-Thomas, Luis Eduardo & Hamann-Salcedo, Franz Alonso (ed.), El mercado de trabajo en Colombia : hechos, tendencias e instituciones, chapter 7, pages 289-330, Banco de la Republica de Colombia.
    12. Baiardi, Donatella & Bianchi, Carluccio & Lorenzini, Eleonora, 2015. "The price and income elasticities of the top clothing exporters: Evidence from a panel data analysis," Journal of Asian Economics, Elsevier, vol. 38(C), pages 14-30.
    13. Lanouar Charfeddine & Zouhair Mrabet, 2015. "Trade liberalization and relative employment: further evidence from Tunisia," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 173-202, June.
    14. Scott, K. Rebecca, 2011. "Demand and Price Volatility: Rational Habits in International Gasoline Demand," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt2q87432b, Department of Agricultural & Resource Economics, UC Berkeley.
    15. Makram El‐Shagi & Steven Yamarik, 2019. "State‐level capital and investment: Refinements and update," Growth and Change, Wiley Blackwell, vol. 50(4), pages 1411-1422, December.
    16. Jaanika Merikull & Tairi Room, "undated". "Are foreign-owned firms different ? Comparision of employment volatility and elasticity of labour demand," Bank of Estonia Working Papers wp2014-1, Bank of Estonia.
    17. Li, Tingting & Wang, Yong & Zhao, Dingtao, 2016. "Environmental Kuznets Curve in China: New evidence from dynamic panel analysis," Energy Policy, Elsevier, vol. 91(C), pages 138-147.
    18. Dimelis, Sophia P. & Papaioannou, Sotiris K., 2011. "ICT growth effects at the industry level: A comparison between the US and the EU," Information Economics and Policy, Elsevier, vol. 23(1), pages 37-50, March.
    19. Samargandi, Nahla & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Is the Relationship Between Financial Development and Economic Growth Monotonic? Evidence from a Sample of Middle-Income Countries," World Development, Elsevier, vol. 68(C), pages 66-81.
    20. Anna Ferragina & Fernanda Mazzotta, 2018. "Firm Employment Resilience and FDI: Evidence from Italy," L'industria, Società editrice il Mulino, issue 4, pages 523-556.

    More about this item

    Keywords

    multinationals; labour demand; grants;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp3168. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.