The impact of labour subsidies on total factor productivity and profit per employee

Pontus Mattsson

Economic Analysis and Policy, 2019, vol. 62, issue C, 325-341

Abstract: Subsidising targeted labour groups is a common intervention to prevent long-term unemployment. Lower expected firm productivity is the motivation for subsidising labour, but all research, with one exception, focuses on other effects while some investigate the total factor productivity (TFP) effects of capital subsidies. This study combines methods that, to the best of my knowledge, have not previously been used together to determine the impacts of labour subsidies on TFP. Further, profit per employee is included as a second outcome. Coarsened exact matching (CEM) is performed on the key variables; difference-in-differences (DiD) is then applied to the matched data. It is found that firms employing workers with wage subsidies experience negative and significant effects on both TFP and profit per employee. Heterogeneity is, however, observed; the only sector to show a deficit in both TFP and profit per employee is wholesale. During the second year with a subsidy, a negative impact can be observed on the profit per employee but not on TFP. The policy conclusion from the analysis is that subsidising individuals from particular groups is necessary to induce firms to hire workers from these groups. However, the time period for which a single firm is subsidised should be considered.

Keywords: Coarsened exact matching (CEM); Difference-in-differences (DiD); Profit per employee; Subsidised employment; Törnqvist TFP index (search for similar items in EconPapers)
JEL-codes: C43 D24 J08 J23 O38 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:62:y:2019:i:c:p:325-341

DOI: 10.1016/j.eap.2018.09.007

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