Tensions of Structural Change: Evidence from Finland’s Field Reservation Policy

While structural transformation is vital for economic development, it often counters resistance. To shed light on the tension between the political and economic effects of structural change, I study a policy that paid farmers to stop farming in 1970s Finland. Using over 290,000 newly digitized Agricultural Census forms linked to rich register data, I find that this Field Reservation Policy led to farm closures but did not affect farmers’ income or geographical mobility. However, it had an important intergenerational effect. Children of the most affected farmers had 2.7% higher earnings and were more likely to work in office and managerial positions. Surprisingly, the positive effects on income are predominantly driven by children with lower cognitive skills. Despite the economic benefits, the policy faced a political backlash contributing to the rise of a populist rural party. I provide evidence for two separate explanations for this political reaction: identity-based backlash by offended farmers and negative externalities arising from field reservation.