International Journal of Industrial Organization 7 (1989) 489501.

North-Holland

THE EFFECTS OF STATE AID ON EMPLOYMENT AND

INVESTMENT IN THE FRENCH TEXTILE AND CLOTHING
INDUSTRY *

Christine HUTTIN
Uniuersity of Paris X-Nanterre, 92001 Nanterre, France

Final version received October 1988

This paper uses cross-section data on 286 firms in the French textile and clothing industry to
assess the effect of the aid provided under the 1982-1983 French Textile plan. Although all the
lkms are in the same industry, they face very different conditions. Cluster analysis is used to
divide the firms into live broad groups on the basis of a set of environmental variables.
Employment and investment equations are then estimated for the whole sample and each of the
groups. In these equations state aid influences employment and investment decisions by
changing relative factor costs and by removing liquidity constraints. The econometric results
confirm the differences between the groups and indicate that the aid was effective in only a
restricted number of groups.

1. Introduction

There is considerable dispute about the extent to which state aid

encourages or otherwise modifies employment and investment decisions.
Often intended as a temporary economic measure, state aid is widely
criticised for its perverse effect on business decision-making. For example, it
may bring forward investments originally scheduled for a later date, lead
firms to distort resource allocation in order to qualify for such aid.
To test for these effects requires micro-economic data on firm behaviour.
Some microeconomic models have already detected a number of unexpected
effects on employment: Colin and Espinasse (1980) showed for instance how
the National Job Pact in France led to reduced job security. In Great
Britain, Pratten and Deakin (1962) analysed Temporary Employment Subsi-
dies, revealing how unaided firms postponed or cancelled hiring while
suppliers faced stiffer business terms from clients aware of state aid measures
benetitting the former.
This paper examines the 1982-1983 French Textile Plan (FTP), which cut
the social charges of companies implementing specific employment and
investment measures. This measure was taken in 1981 by the newly elected

*I am grateful to R. Smith and R.A. Thietart for comments on the earlier versions of this
article.

0167-7187/89/$3.50 0 1989, Elsevier Science Publishers B.V. (North-Holland)

J.I.O.- IJ
490 C. Huttin, The efects of state aid in the French textile and clothing industry

Socialist Government. The action in favour of this industry resulted from

several factors: the severe decline of investment and employment in that
industry, the pressure of professional lobbies (especially in the North of
France where the Prime Minister came from) and the desire of the French
government to have a psychological impact on the managers of that
industry.
The Plan was quite original in comparison with the traditional tools of
industrial policy used previously in the industry. Its objective was to benefit
to as many firms as possible. This was especially relevant in the clothing
sector where small and medium sized companies represent a great part of the
industry. The choice of a single and simple instrument resulted from the
desire to act quickly and avoid introducing new procedures. The administra-
tive process used to distribute the aid operated through the actual organisa-
tions collecting the employers social charge contribution. The aid was spread
over 3,000 firms in 1982 and 1983. Different types of contracts were signed
between the firms and the Administration: a reduction of 12 %, 10 % or 8 %
in social taxes in 1982 and 12%, lo%, 8% or 6% in 1983 could be obtained
under mutual agreement on employment redundancy limitations. The French
government wanted to stimulate investment but, at the same time, to oblige
managers to take into account the social implications of their investment
plans.
This paper presents an assessment of the effect of this measure on
employment and investment using a modified factor demand model. It deals
with the heterogeneity of the possible effects of aid by statistically classifying
firms into homogeneous clusters before estimating the factor demand func-
tions. Previous studies using Neoclassical, Keynesian and Rationing models
[e.g., Nadiri and Rosen (1969), Muet (1979), Pouchain (1980), Dormont
(1983)] nave rarely found significant effects of state aid, partly because they
used aggregate industry level data, which may have concealed the effects.

2. Industry structure
The first step is to identify homogeneous groups of firms within the
industry. This was done by applying cluster analysis on the basis of the main
environmental variables which might influence the form of the factor demand
functions and the impact of state aid. From the standard factors used in the
literature on industrial organisation, seven environmental variables were
chosen. These are listed below:
The degree of concentration, the standard indicator of market structure,
was measured as the share of the 4 largest firms in the total French
consumption of textile and clothing industry products for the period 1980-
1983. In a rationing form of factor demand model, profits are often seen as
determinants of investment and labour demand. We hypothesize here that a
 C. Huttin, The effects of state aid in the French textile and clothing industry 491

correlation between the level of concentration in the branch and the level of
profit may differentiate the impact of the liquidity constraint on factor
demand: the more the activity is concentrated, the higher the level of
liquidity available to the firm, and therefore the weaker the liquidity
constraint on factor demands.
The production fluctuations are a factor reflecting the imbalance of supply
and demand in a market. The measure used was the ratio between demand
and production growth (in real terms) for the period 198G1983.
Demand growth is commonly used in applied industrial economics as
another element of market structure which relates to industry profit [e.g.,
Jenny and Weber (1974), and Khalizadeh-Shirazi (1974)]. However, if
producers do not foresee short-term surges in demand, there can be no
immediate re-adjustment of production capacity [D. Encaoua and B. Frank
(1980)]. We hypothesise the faster an activity grows, the greater are the
chances that the company will have high margins, the fewer the impediments
to investment and, thus, the greater the production resource re-allocation.
Demand growth was measured by the total sales of the branch variation
between 1980 and 1984.
Market penetration and exporting are factors used to control for the extent
of foreign competition and the international size of market structures. The
measures were the average share of total imports (in value terms) in
consumption of the branch for the period 1980-1983, and the average share
of total exports (in value terms) of the production by activities for the period
1980-1983.
Entry barriers discourage prospective manufacturers from starting up in a
certain activity. They may be either environmental or strategic factors. The
crucial textile and clothing industry entry barrier is activity-related import
tariffs and quotas, e.g., Multi-Fibre Agreement and other agreements with
third-party countries. The model treats tariffs and quotas differently from
direct subsidies to individual companies. In effect, tariffs and quotas apply to
product families and vary for each family. They are taken as an environ-
mental variable. Protection allows a company re-structured in order to
complete modernisation. The measure used was the average share of imports
under quotas in total imports by product type.
Distributors’ power is an important influence on the structure of an
industry [see El Ansary and Stern (1972), Etgar (1976), Hunt and Nevin (1974),
Lusch and Brown (1982), and others]. Bargaining power could account for
certain difficulties enterprises face in implementing marketing policy. The
greater power a distributor has, the more aggressive marketing policy a
manufacturer will have to adopt, for instance by choosing an independent
distribution network or diversifying his distributive network to balance the
risks. Firms that can face the commercial conditions of new trends in
distribution should be better able to maintain greater access to
492 C. Huttin, The effects of state aid in the French textile and clothing industry

Table 1
Textile and clothing industry environmental clusters: average values by clusters of seven factors
defining industry structure.8
Cluster name
Environmental criteria A B C D (E)
Concentration 13.6 30.6 51.4 11 37.2
(5.4) (13.3) (14.2) (3.6) (23.3)
Production fluctuation 1.01 0.76 0.96 0.81
(0.87) (0.58) (1.16) (0.56) (Z2)
+ Demand growth 2.25 -1.49 -3.3 -3.8 2.26
(3.54) (2.20) (2.8) (1.1) (7.11)
% Foreign penetration 41.1 15.8 54.0 64.5 53.9
(10.6) (;8;) (9.7) (9.1) (16.3)
‘4 Export 21.1 42.8 35.5 42.9
(10.0) (;;) (12.5) (10.0) (19.4)
Distributors’ power factor 33.3 11.6 12.4
(13.3) (7:4) (1::;) (11.9) (16.33)
Protectionism factor 36.5 19.5 18.2 32.2 17.1
(6.6) (16.8) (21.2) (9.3) (16.7)
Total number of enterprises 91 57 57 48 36
Average level of aid
per firm (index 100 in
group E) 40 52 116 62 100
“Standard deviations are given in parentheses.

consumers. In the factor demand model, this would imply that demand
constraints may have a smaller impact on investment and labour demand.
Distributors’ power was measured by the average share of the modern
networks of distribution in total distribution sales by product type (e.g.,
department stores, mail-order houses, and so on).
The textile and clothing enterprises chosen for the sample were drawn
from among the main branches listed in the Annual Enterprise Suroey,
published by the French Ministry of Industry. The study is based on a
custom-built data bank of financial and accounting data compiled from that
survey, applications for state aid, personal interviews with leading textile and
clothing industry figures and sundry reports. It covers 286 textile and
clothing enterprises, most of which averaged FRF 50M +(USS 8 M -l-) total
annual sales. All branches are not equally represented. The sample covers
75 %--90% cotton spinning industry activity, against 20 x-30% carded wool
spinning and women’s wear industry activity, the last two consisting mainly
of very small firms.

2.1. Environmental clusters

A clustering analysis of the data revealed five very different environments
within the industry. Table 1 gives the mean value for an average firm
 C. Huttin, The effects ofstateaid in the French textile and clothing industry 493

belonging to each group for the seven factors. Standard deviations are given
in parentheses. For instance, the protectionism factor, measured by the
average share of imports under quotas in total imports by products of group
A, is 36.5%; the highest of the five clusters. The dispersion around this value
is low: the standard deviation is 6.6, implying that the mean is statistically
different from the mean value for the four other groups (the difference has
been tested with a Student’s test).
Group A, ‘protected and strong distributor’s power group’: this group shows
profitable market conditions and good domestic demand growth. Strong
foreign competition and penetration by imports has led the French authori-
ties to regulate commerce in most articles. A handful of distributors
dominate the market and are able to force producers either to comply with
their demands or to cultivate special networks.
Group B, ‘concentrated and stagnant group’: a few producers populate the
market, demand is low and there is little direct foreign competition.
Group C, ‘a small number of large manufacturers dominate the markets’:
composed largely of nylon tights, men’s wear and wool processing. Domestic
demand dropped sharply in the course of the study, markets were wide open
and foreign competition was strong while French firms were active on
exports markets. The authorities intervened with a minimum of tariffs or
quotas.
Group D, ‘specialised and highly competitive group’: unlike group C, no
enterprises dominate this market; most firms are specialised and varied, e.g.,
skiwear, special-purpose protective garments, cotton weaving. What sets this
group apart is the fierceness of foreign competition and the sharpest fall in
demand for any group. Group D enterprises do export, but less than Group
C enterprises.
Group E, ‘miscellaneous group’: a hard-to-analyse collection of very different
firms which hold highly specialised positions in the textile markets, e.g. they
turn cotton into velvet, or deal in knitted fabric and sell on both the cloth
and readymade clothing markets. Other firms specialise in fashionable high-
profit short-lifespan items (e.g., tracksuits for the ‘jogging’).

3. Factor demand model

Each enterprise cluster corresponds to a particular set of aid use con-
ditions. A modified factor demand model explaining employment and
investment decisions is then applied to the clusters. The various clusters
previously described will serve to test one basic hypothesis:
the effects of aid differ according to the different environmental con-
ditions in which the firms operate.
The two basic equations of the model used to explain investment and
employment change take into account: the rate of change of value-added (Q),
494 C. Huttin, The eflects of state aid in the French textile and clothing industry

as an estimate of demand anticipation; the rate of change (or the level) of

relative factor cost (RC); the liquidity of the firm (L). Using a log-linearized
model, the two equations are
DK=a+aDKO+aRC+aQ+aK+aL, (1)
DE23 = b + bDE20 + bRC + bQ + bE + bL, (2)
where DK = 1982-1983 Average Investment rate, DKO= 1980-1981 average
investment rate, RC = Relative factor cost, Q = Demand Anticipation, mea-
sured by the rate of change of value-added, DE23 =employment in 1983/
employment in 1981, DE20=employment in 1982/employment in 1980,
L= Liquidity variable, K =invested capital in 1981, E = Employment level in
1981 (all variables are expressed in log and variable definitions are described
in the appendix).
This is the standard form of the model used in the literature [e.g., Artus
and Muet (1979)]. The lagged dependent variables E and K partly control
for the size of the firms.
The variable of interest is the industrial policy tool: the social charge
reduction from the Textile Plan of 1982-1983. State aid is represented as
either a reduction in unit labor cost or as added liquidity over the 2-year
French Textile Plan time frame (1982-1983). In the first case, there is
demand substitution between two production factors. It is then assumed that
state aid acts as a relative cost variable of the production factor. Any
enterprise sensitive to variations in relative cost should tend to modify
resource allocation decisions so as to replace the costlier factor by the more
economical alternative. In the second case, state aid acts as a source of
liquidity. It is assumed that an enterprise under financial pressure ought to
be sensitive to state aid as a form of added income for employment and
investment purposes.
For testing substitution and liquidity effects of state aid, the relative factor
cost (RC2) was decomposed into a relative cost without aid (RCl), a change
in the relative cost due to the aid (RCO). The liquidity variable was
decomposed into a liquidity variable without aid (Ll) and a change of
liquidity representing the value of the aid (LO).
The factor demand equations with the state aid variables included are
DK=a+aDKO+aRCl+aRCO+aQ+aK+aLl+aLO, (3)
DE23=b+bDE20+bRCl+bRCO+bQ+bE+bLl+bLO, (4)
where RC= 1983 labour cost with aid/1983 Cost of capital with aid,
RCl= 1983 labour cost without aid/1983 Cost of capital without aid,
RCO=RC- RC1, Ll= 1982-1983 (prolit with aid/value-added), Ll= 1982-
1983 (profit/value added), LO= L- Ll (LO is the liquidity level corresponding
to the level of aid due to the Textile Plan over the period 1982-1983).
 C. Huttin, The effects ofstateaid in the French textile and clothing industry 495

Table 2
Results for the investment equation.”

Parameter al a2 a3 a4 a5 a6 al
Variable a0 DKO RCl RCO Q K Ll LO R2
Pooled -6.13 0.19 0.3 1 -0.15 7.01 - 0.29 0.21 2.12 0.65
n: 286 (- 1.844) (2.59) (2.66) (-3.01) (2.42) (-4.23) (0.40) (3.24)
F: 16.604
Cluster A - 10.77 0.04 0.02 -0.11 10.36 -0.14 1.70 0.76 0.50
n: 89 (- 1.18) (0.21) (0.10) (-0.80) (1.32) (-0.62) (0.66) (0.43)
F= 1.62
Cluster B 7.54 0.20 0.73 -0.24 -6.51 -0.33 0.33 1.40 0.70
n: 51 (1.21) (1.21) (2.73) (-3.45) (-1.14) (-1.81) (0.60) (1.67)
F: 4.38
Cluster C 2.97 0.27 0.21 -0.11 - 1.03 -0.32 1.80 0.80 0.90
n: 57 (0.39) (1.78) (0.79) (-0.78) (-0.14) (-3.43) (0.54) (0.33)
F= 16.99
Cluster D -26.1 0.5 1 1.37 -0.29 23.30 -0.14 2.72 2.69 0.90
n: 48 (- 1.91) (1.96) (3.01) (- 1.61) (2.09) (-0.54) (1.10) (0.93)
F: 6.73
“t-statistics in parentheses.

Table 3
Results for the employment equation.a

Parameter bl b2 b3 b4 b5 b6 bl
Variable b0 DE20 RCl RCO Q E Ll LO R2
Pooled - 1.55 0.59 - 0.008 - 0.03 1.72 -0.04 -0.14 0.11 0.59
N: 286 (- 1.32) (5.32) (-0.19) (- 1.77) (1.60) (-1.59) (-0.79) (0.52)
F: 12.72
Cluster A -0.16 0.42 0.18 -0.12 1.12 -0.09 -0.63 1.14 0.63
n: 89 (-0.05) (1.11) (1.62) (-2.28) (0.04) ( - 0.97) ( - 0.65) (1.63)
F: 2.75
Cluster B - 2.39 0.30 - 0.08 0.002 1.99 0.07 0.13 -0.01 0.76
n: 51 (- 1.61) (1.88) (- 1.57) (0.18) (1.4) (3.1) (1.21) (-0.07)
F: 0.003
Cluster C 1.19 0.45 - 0.03 - 0.03 -0.76 - 0.07 0.56 -0.35 0.77
n: 57 (0.55) (2.22) (-0.43) (-0.69) (-0.37) (- 1.97) (0.61) (-0.48)
F: 2.45
Cluster D -0.71 0.84 0.25 - 0.09 0.45 0.94
n: 48 (-0.20) (3.61) (1.95) (-1.67) (E) (0.51)
F: 12.78
st-statistics in parentheses.
496 C. Huttin, The effects of state aid in the French textile and clothing industry

Tables 2 and 3 give the estimated results of applying (3) and (4) to the
pooled sample and to the clusters individually.

4. The results on pooled sample and clusters

In the pooled sample, relative factor cost (RCl, the ratio of labour to
capital costs without allowance for aid) has a positive effect on investment
demand, as we would expect. The elasticity is 0.31. Companies in the textile
and clothing industry are globally very sensitive to labour cost relative to
capital cost. The aid adjustment RCO, however, has a negative effect. If the
aid had merely changed relative factor costs, it should have had the same
coefficient as RCl (the coefficient is -0.15). There is a negative substitution
effect on investment demand, which is marginal however.
The effect of relative costs on employment in the pooled sample is very
small, 0.008, as is the aid effect at -0.003. The variations in the employment
policies of firms are mainly explained by managers’ anticipation of demand:
The change in employment associated with a unit change in demand is 1.7,
which shows a greater responsiveness to demand than to price.

4.1. Substitution effect on environmental clusters

In the B and D clusters (42% of the total sample), the investment
strategies of firms were sensitive to relative cost variations. Cluster B
companies deal in uniforms, workclothes, spinning and fabric enhancement
and the market is domestic with limited short term export potential.
Cluster D companies deal in trouser cloth, sweaters, skiwear and chiefly
cotton weaving textile firms. Foreign competition is strong and in these two
clusters, outlets are very restricted. In cluster B, markets are rather stagnant
and competition is strong among French producers. In cluster D, the
competition is very fierce from many sides and cost reductions strategies play
a key role in investment strategies of managers.
Unfortunately, applying the French scheme on labour cost provoked a
negative substitution effect against investment, shown by the two negative
coefficients associated with RCO:-0.24 for the cluster B investment equation
and -0.29 for the cluster D investment equation.
Neither cluster B nor D show a significant effect of relative cost or aid on
employment. Market environment pressures are so strong in these groups
that they limit the positive adjustment of employment to a temporary change
of labour cost.
In cluster D, it appears that the higher the relative labour cost, the higher
the labour demand, which is contrary to economic theory. If it is not the
result of a measurement problem, an explanation could be that most firms in
such an environment are operating under-capacity.
Neither cluster A nor C (58% total sample) show a significant effect of
relative cost or aid on investment. Cluster A firms manufacture hosiery and
 C. Huttin, The effects of state aid in the French textile and clothing industry 497

shirts; cluster C firms, synthetic fabrics, woollen knitwear and spinning,

industrial libres, weaving thread, nylon tights and curtains.
Cluster A represents an environment where there is strong foreign
competition and strong distributors. However, the consumption is not
declining in this group (the mean associated with evolution of demand is
positive (2.25)), and opportunities exist in France and abroad; in cluster C,
producers are concentrated and have an international size, and operations
abroad allow firms to face the declining French demand, without provoking
a crisis. As in the case of group A, firms in group C facing more favourable
opportunities appear not to take into account factor price elasticity as a key
element in their investment decisions.
A and C firms adjusted their labour demand marginally to changes in
relative labour cost. The French Textile Plan substitution incidence was
significant in cluster A, but only with a price elasticity of -0.12. It is
however the only cluster where a significant substitution effect of the scheme
on labour demand was found. Cluster A represents mainly clothing compa-
nies and the share of labour cost in the total cost of an item can reach 60%.
The rather marginal substitution effect of state aid on labour demand, even
in such a cluster, could be explained by the fact that this cluster merges some
clothing activities, like shirts, where automated process makes it a less
important incentive on labour cost. But the main explanation of the poor
efficiency of aid may also be that a two-year cut in social charges represents
a very low cut in the total unit labour cost.
The French textile plan had an effect on investment mainly through a
liquidity effect. The liquidity coefficient associated with state aid on the
investment equation of the pooled sample shows that it was a key factor for
investment decision: a change in the capital accumulation rate of over 2%
was associated with a 10% increase in the profit rate due to the aid (ceteris
paribus). The scheme eased a key problem restraining investment in this
industry. However, the liquidity effect on investment decisions is much lower
than the one associated with the anticipation of demand, and on labour
demand, there is no liquidity effect of aid. Again, the poor result of the plan
on employment could be explained by the disproportion between this
temporary incentive and the role of other factors, like demand and the total
cost of hiring a new employee.

4.2. Liquidity eflect on clusters

State aid that affected production cost factors provided only a minor
investment incentive in the face of strong foreign competition. Investment in
the environmental clusters does not correlate significantly with liquidity or
state aid. For instance, cluster A enterprises seemed to know no financial
constraint on investment and state aid had no appreciable effect thereon.
Demand was the major determinant of investment policy.
498 C. Huttin, The efects of state aid in the French textile and clothing industry

More differentiated results appeared on the liquidity effect of aid on labour

policies: in cluster A, the effect of aid appeared mainly through the
substitution effect. However, the coefficient associated with the liquidity effect
of the scheme was the most positive even if, in this formulation of the model,
it is not statistically significant (in other works, variations of this basis model
showed significant impact of aid). This suggests that such incentive instru-
ments can reach the objective of public policy when the expansion of
demand encourages investment by companies whose labour cost is a big
share of total cost. Group B and C enterprises, operating in the worst
environment, altered employment levels least despite having the most aid.
Labour demand equations for both clusters yield negative values for the
coefficient between labour demand and aid. The negative effect appears the
strongest in cluster C where the regression coefficient is -0.35. In this
cluster, the scheme seemed to cause a reverse liquidity effect.
Cluster D doesn’t show a liquidity effect of the French textile scheme on
employment demand. The domestic market was very unfavourable, foreign
competition had wrested dominance of the home market and demand for
cotton cloth in the French Textile Plan timeframe was sharply decreasing.
Given such a strong environmental constraint, temporary’ financial incentives
had little chance of acting positively on enterprises.
Results for more detailed clusters suggest that French Textile Plan
liquidity effect in particular stands out more clearly at an even more
disaggregated step, but only in few clusters. Thus the positive coefficient
associated with State Aid on the pooled sample refers mainly to a small part
of the industry where the plan was really effective. The effect of aid was then
severely localized within the industry.

5. Conclusions
Our results suggest that the French 1982-1983 Textile Scheme was only
effective in a restricted number of enterprises clusters, that it had very little
effect on employment as a whole, and only some positive effects on
investment. Even if it was applied on a key element of costs of the
companies, only firms from cluster A showed a positive incidence of the
scheme on employment policies. The poor efficiency of aid on employment
results mainly on the fact that a two-year cut in social charges represents a
low reduction of the total unit labour cost for hiring an employee (on his
average stay in a company). On the investment side, the application of the
Plan operated through the liquidity constraints on managers decisions, and
the positive effect of reducing it to increase investment. It appears mainly
efficient for companies where the labour cost is a big share of total cost.
The peculiar segmentation of the industry presented in this paper aimed to
set a first step to organize a new industrial policy which would take into
 C. Huttin, The effects of state aid in the French textile and clothing industry 499

account environment and company characteristics to target selective financial

incentives. Other work should be done to test the impact of other instru-
ments so that the more efficient means would be used to reach public policy
objectives.

Appendix:

Description of the data

A sample of 286 firms has been built on the textile and clothing industry.
Financial data and state aids measures come from the annual inquiry of the
French Ministry of Industry and various reports on each firm done for aid
instruction procedure. Measures on environmental and company characteris-
tics are built mainly with scaling procedure (like Likert measurement), or
quantitative measures when they are convenient to represent the variables.
Variables have been standardised in the clustering steps of the analysis to
avoid the effects of differences in the measurements. The measures of factors
for clustering are given in the article, the measures for variables of the factor
demand model are given in the following list.

Computational procedures

The statistical analyses has been realised in two steps: the cluster analysis
with a BMDP program (P2M). The Euclidean distance has been taken as an
average distance measure between the clusters. The different means values
have been generated with an agglomerative hierarchical technique: it begins
with an inter-firm similarity matrix and proceed by series of successive
fusions of the n firms culminating at the stage where all fnms are in one
group. At any stage in the procedure, the method fuses together the two
firms or two groups of firms which are most similar. The numbers generated
on the table 1 correspond to clusters whose number was not a priori fixed;
the inspection of the diagram tree, which gives at each stage of the merging
process the mean of each cluster for all the factors allowed us to empirically
determine the level at which the clustering should be stopped (other
combination has been tested to assess the stability of the aggregation).
The econometrics used to test the labour and investment equations are
two-staged least square programs, run on SAS software.

List of variables and measures

DK =Z(n)/K(n- l), Price deflated gross investment divided by previous year

gross-fixed assets (average for 1982-1983)
DE31 =E(83)/E(81), Employment change between 1981 and 1983
 500 C. Huttin, The effects ofstateaid in the French textile and clothing industry

K(n) = Gross assets in year n

E(n)=Employment level in year n
DKO = I(n - 2/K(n - 3), Price deflated gross investment divided by previous
year gross-fixed assets (average for 1980-1981)
DE20=E(82)/E(80), Employment change between 1980 and 1982
Q= VA(83)/VA(82), the growth in value added
R.C. = CL(n)/CK(n), relative costs
CL.(n) = FP(n). 1948/E(n).p(n). 1779, where FP(n) = Employee benefit, E(n) =
Employment level in year n, 1779=annual working hours in 1980-1981,
1848 =annual working hours in 1983, P(n) =Price index of textile and
clothing products.

CWY = (q(Wo))(R(n) + D(n) - P), where q(n) = textile and clothing equip-
ment price index (according to activities), p(n) =price index of textile and
clothing products, R(n)= Interest rate for each firm in year n, proxied by
interest payment divided by total sales (without the value-added tax),
o(n) =Depreciation anticipation rate in year n in each industrial branch.
Figures have been estimated from governmental and professional experts,
partly through information collected in subsidy agreement reports, P = antici-
pated price deflator (managers expectations have been estimated through
interviews and subsidy agreement reports)
CEZ82=E(82).ACS(82)/VA(82), aid rate in 1982
CE183 = E(83).ACS(83)/VA(83), aid rate in 1983
ACS(82)= Social charge tax relief in 1982 per employee per firm
ACS(83) = Social charge tax relief in 1983 per employee per firm
L=operating gross income divided by the added-value in year n

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