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Marginal Employment Subsidization: A New Concept and a Reappraisal -super-*

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Author Info
Andreas Knabe
Ronnie Schöb
Joachim Weimann

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Abstract

In this paper, we attempt to renew the interest in marginal employment subsidies. Such subsidies are paid only for a firm's additional employment exceeding some reference level and create larger employment stimuli at lower fiscal costs than general wage subsidies for all workers. If the hiring of a new employee also entails subsidizing an incumbent worker (double marginal subsidization), the replacement of regular paid workers by outsourcing employment to newly established firms - a standard critique of marginal employment subsidies - can be avoided. This additional subsidy reduces the incentive to crowd out regular employment and results in even larger employment effects. Applying the subsidy scheme to the low-skill labor market in Germany, we show that employment can be substantially increased without imposing additional fiscal burden. Copyright © 2006 Blackwell Publishing Ltd..

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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/j.1467-6435.2006.00349.x/enhancedabs
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Publisher Info
Article provided by Blackwell Publishing in its journal Kyklos.

Volume (Year): 59 (2006)
Issue (Month): 4 (November)
Pages: 557-577
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Handle: RePEc:bla:kyklos:v:59:y:2006:i:4:p:557-577

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This page was last updated on 2008-9-29.

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