Jobs, Workers, and Firms: Dissecting the Labour Market Effects of Finland’s COVID-19 Subsidy Program

Johannes Hirvonen, Otto Kässi and Olli Ropponen

No 111, ETLA Working Papers from The Research Institute of the Finnish Economy

Abstract: Abstract This paper examines the labour market impacts of Finland’s initial COVID-19 subsidy program, designed to mitigate the economic fallout of the pandemic. Utilising a novel and comprehensive dataset and a judge-leniency instrumental variables design, we analyse the effects of these subsidies at both the firm and worker levels. Our findings reveal nuanced effects: the program increased the wage sum in the treated firms and decreased the risk of unemployment. On the other hand, the subsidies reduced labour productivity in treated firms, potentially hindering creative destruction. At the worker level, subsidised employees fared better in subsequent years than their non-subsidised counterparts, with slight increases in annual salaries and a higher likelihood of being employed. However, these workers were more likely to be employed in lower-productivity firms. This paper contributes to our understanding of the implications of fiscal interventions during crises and provides critical insights for shaping future economic policies in similar contexts.

Keywords: Business Finland subsidy program; Crisis subsidies; COVID-19; Fiscal policy; Productivity; Unemployment (search for similar items in EconPapers)
JEL-codes: E24 H25 H32 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2023-12-14
New Economics Papers: this item is included in nep-eec and nep-inv
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