Do Business Subsidies Facilitate Employment Growth?

Heli Koski and Mika Pajarinen ()

No 12-02, DRUID Working Papers from DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies

Abstract: We use data from 15 508 Finnish companies with 10 or more employees for the years 2003-2008 to explore the relationship between employment growth and three endogenously determined business subsidy types (i.e. employment subsidy, R&D subsidy and the group of other business subsidies). We find a positive contemporary relationship between all business subsidy types and employment growth. In addition, our findings suggest that R&D subsidies further contribute to the firms’ employment for one year after and employment and other subsidies for three years after the reception of subsidies. After that, the differences between the subsidized and non-subsidized firms vanish. We further find in line with previous empirical studies that both product innovation and sales growth from a firm’s old products contribute to the firm’s employment growth. Innovation policy means successfully promoting product innovation should thus produce positive employment effects. Our empirical findings suggest that a positive employment effect of R&D subsidies is rather short-term though, and not likely a result of product innovation generated in the subsidized firms’ R&D projects.

Keywords: Public subsidies; enterprise policy; industrial policy; technology policy; employment; growth; Finland (search for similar items in EconPapers)
JEL-codes: J23 L10 L53 O25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cse, nep-ent, nep-lma and nep-sbm
Date: 2012
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Related works:
Working Paper: Do Business Subsidies Facilitate Employment Growth? (2011)
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Persistent link: http://EconPapers.repec.org/RePEc:aal:abbswp:12-02

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