The impact of regional employment subsidies under wage bargaining

The purpose of this paper is to empirically assess the impact on employment of regional labour subsidies. A structural model, consistent with cost minimizing behaviour and wage bargaining, is estimated using data on fish-processing firms in Norway. The estimates are consistent with firms minimizing costs and wages being set by an industry level monopoly union. The results suggest that subsidies increase employment considerably. The union only captures a small fraction of the subsidy.