Labor mobility effects of a firm-level shock

Most governments tackle the economic issues of underdeveloped areas by offering subsidies aimed at fostering economic activities and local employment. Localized policies put constraints on where businesses may locate in order to receive subsidies, but they generally impose few restrictions on whom subsidized businesses must hire. Therefore, the positive impact of place-based policies on employment depends, among others, on two specific factors: the ability to attract new jobs from within the destination local labor market (LLM) as well as that the new job places are not subtracted from existing non-subsidized businesses in the same area. Using administrative data on firms and workers in Italy, we adopt a multiple regression discontinuity design to empirically assess the employment effect of substantial incentives for the replacement or establishment of new capital. Our empirical strategy allows identifying where new hires come from (from the same LLM, a neighboring LLM or a far-away LLM), from which pool of individuals (those working for another company, the students or the inactives), and the impact on wages. The results show how the majority of recruits come from new entrants to the labor market, in particular, young people and students, while displacement effects are limited. Besides, subsidized companies tend to keep their most valuable staff and hire more qualified young people by offering higher wages. So, fears concerning the spatial dispersion of the effects or the possibility that financed companies might poach (skilled) workers from non-subsidized firms in the LLM, at least in areas suffering from high unemployment, appear excessive.