Making Employers: The Effects of Hiring Subsidies in a Large-Scale Randomized Experiment

• In Event: Wage Against the Machine

Abstract

Most firms never become employers. Hiring employees may be unprofitable for them, but they may also face barriers for hiring due to fixed costs of becoming an employer or uncertainty about the profitability of hiring. In the latter case, a temporary hiring subsidy may induce firms to become permanent employers in the long run. We examine a large-scale randomized experiment in Finland that offered to 34,500 randomly selected non-employer firms 10 thousand euros to cover the costs of first employees. We estimate the impacts of the hiring subsidy on employer status, employment, wage bill, and firm performance using administrative panel data on firms, entrepreneurs, and workers from tax records, covering years in the pre-policy period up to one year after the subsidy payments ended.

Authors

• Elias Einiö, VATT

• Annika Nivala, VATT Institute for Economic Research