Regional employment impactsof Common Agricultural Policymeasures in Eastern Germany:A difference-in-differencesapproach

Politicians and farm lobbyists frequently use the argument that agricultural policy is necessaryto safeguard jobs in agriculture. We explore whether this is true by conducting an econometricex-post evaluation of the European Union’s Common Agricultural Policy (CAP) in the threeEast German States Brandenburg, Saxony, and Saxony-Anhalt. Whereas previous studieshave employed descriptive statistics or qualitative methods and have looked at single policyinstruments in isolation, we apply a difference-in-differences estimator to analyse theemployment effects of the entire portfolio of CAP measures simultaneously. Based on paneldata at the county level, we find that investment aids and transfers to less favoured areas had azero marginal employment effect. We present evidence that full decoupling of directpayments in 2005 led to labour shedding, as it made transfer payments independent of factorallocation. Spending on modern technologies in processing and marketing and measures aimed at the development of rural areas led to job losses in agriculture. Agri-environmentalmeasures, on the other hand, kept labour intensive technologies in production or inducedthem. This analysis calls into question whether an expansion of existing second pillarmeasures is a reasonable way to use funds modulated away from the first pillar...