Subsidy for the First Hires and Firm Performance

Haotian Deng (), Sam Desiere (), Bart Cockx and Gert Bijnens
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Sam Desiere: Ghent University

No 18414, IZA Discussion Papers from IZA Network @ LISER

Abstract: This paper studies how employment subsidies for start-ups shape their performance. We exploit an unexpected policy reform in Belgium that permanently exempted start-ups hiring their first employee from payroll taxes for that employee. Using firm-level administrative data and a regression-discontinuity-in-time design, we find that subsidized post-reform startups employed fewer workers and generated lower output, value added, and profits compared to pre-reform start-ups. However, post-reform start-ups were more likely to survive as employers. These effects emerged within the first year after hiring and remained stable over a medium horizon of three years. Our findings indicate a compositional shift: the subsidy primarily induced low-productivity firms to enter the market. As most firms nowadays are nonemployers, our results meaningfully generalize the theoretical implications of standard neoclassical entrepreneurship models (employee-employer margin) and fill the important gap of the nonemployer-employer margin.

Keywords: entrepreneurship; start-up; employment subsidy; tax reduction; labor demand; small firms (search for similar items in EconPapers)
JEL-codes: H25 J23 J24 J38 L25 L26 M51 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-ent, nep-eur, nep-lma, nep-pbe and nep-sbm
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Related works:
Working Paper: Subsidy for the First Hires and Firm Performance (2026)
Working Paper: Subsidy for the first hires and firm performance (2026)
Working Paper: Subsidy for the first hires and firm performance (2026)
Working Paper: Subsidy for the first hires and firm performance (2026)
Working Paper: Subsidy for the first hires and firm performance (2026)
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