(No) Effects of Subsidizing the First Employee: Evidence of a Low Take-up Puzzle Among Firms

Annika Nivala

No 166, Working Papers from VATT Institute for Economic Research

Abstract: Finland had a large regional wage subsidy for hiring the first employee in 2007–2011. In this paper, I show that the take-up of the subsidy was very low: only 2% firms that became employers used the subsidy. The subsidy was restricted to hiring a full-time employee, which reduced the take-up. However, even among full-time employers the take-up rate was only 6%. Hence, a large majority of firms left thousands of euros on the table by not using the subsidy. Based on the descriptive evidence, the low take-up seems to be explained by low awareness in addition to costs of using the subsidy. Using a regional difference-in-differences identification strategy, I estimate the effect of the subsidy on the probability of becoming an employer and other firm outcomes. As a consequence of the low take-up, the estimated effect is zero.

Keywords: Business subsidies; Wage subsidies; Firm behavior; Labor demand; Entrepreneurship; Small Business; Business taxation and regulation; H25; H32; J23; J38; M51; fi=Elinkeinopolitiikka|sv=Näringspolitik|en=Industrial and economic policy|; fi=Työmarkkinat|sv=Arbetsmarknad|en=Labour markets| (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-bec, nep-ent, nep-inv, nep-lma and nep-sbm
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