Abstract

Industrial policy is making a comeback, reviving the question of whether government subsidies stimulate labor markets or inefficiently reallocate consumption and workers towards the subsidized industries. We combine decades of rich administrative data and the quasi-experimental variation in the introduction of universal long-term care (LTC) insurance in Germany in 1995 to document that insurance-induced subsidies for long-term care resulted in a significant growth of LTC jobs and of overall employment in local labor markets.