Why do governments subsidise investment and not employment?

• 成果类型: Article; Proceedings Paper
• 署名作者: Fuest, C; Huber, B
• 署名单位: University of Munich
• 刊物名称: JOURNAL OF PUBLIC ECONOMICS
• ISSN/ISSBN: 0047-2727
• DOI: 10.1016/S0047-2727(99)00115-2
• 发表日期: 2000
• 页码: 171-192
• 关键词: capital subsidies; labour subsidies; unemployment

摘要

The governments of nearly all industrialised countries use subsidies to support the economic development of specific sectors or regions with high rates of unemployment. Conventional economic wisdom would suggest that the most efficient way to support these regions or sectors is to pay employment subsidies. We present evidence showing that capital subsidies are empirically much more important than employment subsidies. We then develop a simple model with unemployment to explain this phenomenon. In our model, unemployment arises due to bargaining between unions and heterogenous firms that differ with respect to their productivity. Union bargaining power raises wage costs and leads to a socially inefficient collapse of low productivity firms and a corresponding job loss. Union-firm bargaining also gives rise to underinvestment. It turns out that an investment subsidy dominates an employment subsidy in terms of welfare if there is bargaining over wages and employment on the firm level. If bargaining is over wages only, results are ambiguous but capital subsidies may still be preferable. (C) 2000 Elsevier Science S.A. All rights reserved.