| Abstract: |
Empirical studies document differences in firms' response to the introduction
of various labor market policies. In particular, large and mature firms tend
to participate more actively in targeted employment subsidy programs (under
which firms receive subsidies for hiring disadvantaged workers). This paper
offers an explanation for this phenomenon and argues that it might have
important consequences for policy making. Namely, such behavior of firms may
indicate that large and mature firms benefit from the introduction of a new
subsidy program, while small and young firms incur indirect costs. In this
case, the policy implicitly redistributes profit from young to mature firms
and may discourage startups if the entry into the industry is competitive. The
resulting decrease in the number of operating firms is likely to have a
significant impact on the policy's outcomes. These effects become more
pronounced as heterogeneity between young and mature firms increases. |