CAP effects on labour use in agriculture: Evidence from alternative dynamic panel data models

Our aim is to investigate whether the direct payments and rural development measures of theEU’s Common Agricultural Policy (CAP) do make jobs in agriculture safer. We work with adynamic labour demand equation that is augmented by the full set of policy instruments of theCAP. It is estimated on a unique regional panel dataset of three East German states for the period1999-2006. We present results for three consistent estimators which differ in how theyeliminate the fixed effects and how they instrument the lagged dependent variable, includingestimators due to Arellano and Bond, Blundell and Bond, and a corrected least-squaresdummy variable estimator due to Kiviet and Bruno. Our results suggest that there were fewdesirable effects on job maintenance or job creation in agriculture. While there is some indicationthat investment subsidies have halted labour shedding on farms, the introduction of thefully decoupled Single Farm Payment has likely contributed to significant job losses.