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PSI
> Events
> The effect of a wage subsidy on subsidized firm’s ordinary employment
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The effect of a wage subsidy on subsidized firm’s ordinary employment
The seminar is based on research by Gabriel Pons Rotger (Danish Institute of Governmental Research) and Jacob Nielsen Arendt (University of Southern Denmark). There is empirical evidence on positive effects of wage subsidy on employability of long-term unemployed (LTU). However, wage subsidies might at the same time crowd out ordinary jobs from subsidised firms and other firms. This undesired effect, not captured by the causal effect on the LTU individual, can be partly assessed by the analysis of the effect of subsidy on the subsidised firm. However, due to lack of data, there is almost no empirical evidence, and this paper makes an attempt to start filling this gap by estimating the causal effect of wage subsidy on subsidised firms’ ordinary employees at different stages of the subsidised period. To do so, on the basis of a dataset on Danish firms that hired a single employee in the spring of 2006, we estimate the direct impact on ordinary employment upon the start, and during the 6 months length subsidised period in order to assess the magnitude of the deadweight loss and direct substitution effect. Due to the fact that the control group is much larger than the treatment group we apply the matched sample approach proposed by Rubin (2006) which allows improving the balance between treatment and control firms substantially. Due to lack of a suitable instrument, we take account of unobservables by conditioning on past evolution of the firms’ monthly level of ordinary employees and measuring outcomes in terms of seasonally differenced monthly firms’ ordinary employment. We find that hiring a subsidised employee has an insignificant average employment effect on the subsidised firm at the beginning of the subsidised contract, but as time passes, wage subsidy has a positive effect on the firm’s level of ordinary employment, this suggesting that employers tend to hire the subsidised employee on ordinary terms. This event is free, but please let us know you are coming by reserving a place. To do so, send an email to PSI administration. If you want any other information about the seminar, please contact Genevieve Knight. For more about the Danish Institute of Government Research (Anvendt KommunalForskning), visit the AKF website. |
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