Factor Subsidies, Employment Generation, and Cost per Job: A Partial Equilibrium Approach

Abstract

Factor subsidies in a perfectly competitive setting are analysed. A very general model is used to derive expressions for the effect of a factor subsidy on the price and quantity of output and the two factor inputs. These expressions are differentiated to generate qualitative results for the impact of changes in the product-demand, production-function, and factor-supply parameters on the subsidy effects. A similar procedure is used to investigate the exchequer cost per job of general labour and capital subsidies in an industry with Cobb — Douglas technology. The analysis is relieved with illustrative simulations in which ‘representative’ parameter values are used.

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