Displacement effects of the Finnish hiring subsidy - Evidence from a funding discontinuity

Abstract

Finland offers a subsidy to employers for hiring individuals with low employment prospects. In 2015, changes to the subsidy’s funding caused some regions to unexpectedly suspend new subsidy grants. I examine wages and employment in these regions using a differences-in-differences setting, with regions where the subsidy remained available serving as control areas. Among the population with low employment prospects, the temporary halt reduced the wage sum from subsidized employment by 37.2 million euros (−32%) over the following year and relative to the control areas. The similarly measured net decline in the total wage sum in this group was 32.7 million euros (−7.3%). Because the reductions in subsidized and total wage sums are very similar, the suspension of new subsidy grants appears to have been largely uncompensated by increases in unsubsidized employment. This suggests that any displacement effects from the subsidy, where the subsidized jobs would be replacing unsubsidized ones, are likely to be small.nonPeerReviewe