Employment effects of CAP payments in the UK non-farm economy

This paper investigates the effects of the CAP payments on the indirectly generated non-farm jobs in small and medium-sized enterprises (SMEs), which are central for job creation. It examines whether there are differences in the effect according to business location - rural or urban, the agricultural supply chain, and according to CAP Pillars. A microeconomic approach is employed, based on firm data from FAME dataset combined with detailed subsidies information from DEFRA. The generalised method of moments (system GMM) is used to estimate the effect of CAP payments in both static and dynamic models of employment. The results suggest positive net spillovers of CAP payments to non-farm employment. Although the magnitude of the effect is small, it is economically significant. In general Pillar 1 has a stronger employment effect relative to Pillar 2. However, in the rural areas and within agricultural supply chain, Pillar 2 payments have a stronger positive effect per Euro spent. Acknowledgement :