Future Versus Today’s Improvements: The Trade-off of Place-Based Policies

Max Brès, Philipp Kircher and David Koll

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper provides causal evidence on the impact of subsidy re-allocation between high technology sectors and low-skill sectors on local labor markets. We exploit a policy targeting under-performing employment areas, France’s Aides à Finalité Régionale, which relaxes rules governing the allocation of firm subsidies while keeping their level constant. In response, policy makers re-allocate subsidies away from research and development to mainly low-skilled manufacturing and service sectors. It triggers a persistent improvement of employment, mainly through increased low-skilled manufacturing employment and at the expense of R&D related occupations. In the long term, though, labor income and productivity decrease. Finally, at the individual level, workers employed in manufacturing at the time of the treatment benefit on average of 2% higher hourly wage even 10 years after the policy was lifted.

Keywords: subsidy allocation; place-based policies; manufacturing; R&D; employment and wages; underperforming areas (search for similar items in EconPapers)
JEL-codes: H25 J21 J31 (search for similar items in EconPapers)
Pages: 33
Date: 2024-07
New Economics Papers: this item is included in nep-lma, nep-mac and nep-ure
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