Capital subsidies and unemployed labour, a regional production function approach

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Abstract
Buck T. W. and Atkins M. H. (1976) Capital subsidies and unemployed labour, a regional production function approach, Reg, Studies 10, 215–222. Capital subsidies are employed by all developed economies to alleviate regional unemployment and other disparities, but one of their effects may be to induce capital intensity through a substitution effect against labour. Estimates of the elasticity of substitution and other evidence suggests that this has indeed been the case in British development areas as a consequence of regional subsidies with a capital bias. A subsidy on additional employment creation is proposed as an alternative to investment subsidies which offers the same benefits but avoids substitution effects against labour. The administrative implications of such a scheme are considered.

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