Exploring the macroeconomic impact of subsidized employment

Spending on subsidized employment programmes has taken a high flight in the Netherlands over the past decade. We consider the impact of subsidized employment for low-productive workers in a stripped-down version of the MIMIC model. In our stylized model employment subsidies in the private sector lead to a marginal increase in employment and output. Subsidized employment programmes in the public sector lead to a larger increase in overall employment, but crowding out of regular employment leads to a fall in overall output. We further show that judging programmes on the basis of individual effects can be quite misleading, as the effects on the aggregate level can be quite different. Finally, given the steep rise in expenditures it is disturbing to see how little empirical knowledge we have on the impact of actual programmes on the individual level.