Template-Type: ReDIF-Paper 1.0
Author-Name: Annika Nivala
Author-Name-First: Annika
Author-Name-Last: Nivala
Author-Email: annika.nivala@vatt.fi
Author-Workplace-Name: VATT Institute for Economic Research
Title: (No) Effects of Subsidizing the First Employee: Evidence of a Low Take-up Puzzle Among Firms
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.
Length: 83
Creation-Date: 2024-06
Publication-Status: Published in FIT Working Paper Series, Finnish Center of Excellence in Tax Systems Research
File-URL: https://verotutkimus.fi/verotutkimus/wp-content/uploads/2024/06/FIT-WP23-First-Employee-200624-1.pdf
File-Format: Application/pdf
File-Function: Parallel version, 2024
Number: 23
Classification-JEL: H25; H32; J23; J38; M51 
Keywords: Business subsidies, Wage subsidies, Firm behavior, Labor demand, Entrepreneurship, Small Business 
Handle: RePEc:fit:wpaper:23