Does the Effectiveness of Employment Incentive Programs Vary by Firm Size

This article examines the impact of national employment incentive programs on employment growth of individual firms in the original fifteen member states of the European Union (EU-15). We investigate whether this impact differs among firms of different size classes, and whether the effectiveness of employment incentive programs depends on the business cycle. We find that expenditures on employment incentives have a positive impact on employment growth for firms of all sizes. However, this impact is significantly reduced for smaller firms, suggesting that employment incentive programs are less effective for small firms. We also find that the employment impact of incentive programs is stronger during recessionary periods, but only for firms without any employees (i.e., own-account workers).