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Creating Low-Skilled Jobs by Subsidising Market-Contracted Household Work

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  • Brück, Tilman
  • Haisken-DeNew, John P
  • Zimmermann, Klaus F

Abstract

We analyse the determinants of household work contracted in the German shadow economy. The German socio-economic household panel, which enumerates casual domestic employment, is used to estimate the demand for such household work. The regressors include regional wage rates, household income and several control variables for household composition. We find that the demand for household work in the shadow economy is very income elastic. This suggests that targeted wage subsidies, linked to household work agencies, would be very effective in raising the legal demand for domestic help. A wage subsidy of 50% of wage costs could thus establish up to 500,000 new jobs for previously unemployed or non-working low skilled workers. The net fiscal costs of such a scheme are about 6.200 euro per full-time job. In addition, society benefits from more law enforcement and from an increased female labour supply, especially of highly qualified mothers.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4225.

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Date of creation: Feb 2004
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Handle: RePEc:cpr:ceprdp:4225

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Keywords: gsoep; household services; labour demand; low skilled unemployment; shadow economy; wage subsidy;

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References

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  1. Jürgen Schupp, 2001. "Private Haushalte als Arbeitsgeber bleiben beschäftigungspolitisch von geringer Bedeutung: "Hausmädchenprivileg" überflüssig," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 68(13), pages 201-210.
  2. Namkee Ahn & Sara La De Rica, 1997. "The underground economy in Spain: an alternative to unemployment?," Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 733-743.
  3. Hilmar Schneider & Wolfram Kempe, 2002. "Lohnabstandsgebot kein hinreichendes Kriterium für positive Arbeitsanreize im Niedriglohnbereich," Wirtschaft im Wandel, Halle Institute for Economic Research, vol. 8(4), pages 85-91.
  4. Reuben Gronau & R. Layard, . "Home Production - A Survey," University of Chicago - Population Research Center 85-2, Chicago - Population Research Center.
  5. Rosenzweig, Mark R & Wolpin, Kenneth I, 1980. "Life-Cycle Labor Supply and Fertility: Causal Inferences from Household Models," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 328-48, April.
  6. Tilman Brück & John P. Haisken-DeNew & Klaus F. Zimmermann, 2002. "Förderung von Agenturen für haushaltsnahe Dienstleistungen schafft Arbeitsplätze für Geringqualifizierte," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 69(23), pages 363-369.
  7. Fortin, Bernard & Lacroix, Guy & Montmarquette, Claude, 1997. "Are Underground Workers More Likely to be Underground Consumers?," Cahiers de recherche 9710, Université Laval - Département d'économique.
  8. Karsten Hank & Michaela Kreyenfeld, 2000. "Does the availability of childcare influence the employment of mothers? Findings from western Germany," MPIDR Working Papers WP-2000-003, Max Planck Institute for Demographic Research, Rostock, Germany.
  9. Suen, W., 1995. "Market-procured housework: The demand for domestic servants and female labor supply," Labour Economics, Elsevier, vol. 2(1), pages 105-105, March.
  10. Annette Mummert & Friedrich Schneider, 2001. "The German Shadow Economy: Parted in a United Germany?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(3), pages 286-, July.
  11. Hersch, Joni & Stratton, Leslie S, 1994. "Housework, Wages, and the Division of Housework Time for Employed Spouses," American Economic Review, American Economic Association, vol. 84(2), pages 120-25, May.
  12. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier.
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Cited by:
  1. Friedrich G. Schneider, 2006. "Shadow Economies and Corruption all over the World: What do we really know?," Economics working papers 2006-17, Department of Economics, Johannes Kepler University Linz, Austria.
  2. Friedrich Schneider, 2014. "Outside the State - the Shadow Economy and Shadow Economy Labor Force," CESifo Working Paper Series 4829, CESifo Group Munich.
  3. Friedrich Schneider, 2013. "Size and Progression of the Shadow Economies of Turkey and Other OECD Countries from 2003 to 2013; Some New Facts," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 2(2), pages 83-116, May.
  4. Schneider Friedrich, 2010. "The Influence of Public Institutions on the Shadow Economy: An Empirical Investigation for OECD Countries," Review of Law & Economics, De Gruyter, vol. 6(3), pages 441-468, December.
  5. Melanie Lührmann & Matthias Weiss, 2006. "Market Work, Home Production, Consumer Demand and Unemployment among the Unskilled," MEA discussion paper series 06101, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  6. Schneider, Friedrich G. & Buehn, Andreas, 2007. "Shadow economies and corruption all over the world: revised estimates for 120 countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1(9 (Versio), pages 1-53.
  7. Schneider, Friedrich, 2011. "The Shadow Economy and Shadow Economy Labor Force: What Do We (Not) Know?," IZA Discussion Papers 5769, Institute for the Study of Labor (IZA).
  8. Schneider, Friedrich, 2012. "The Shadow Economy and Work in the Shadow: What Do We (Not) Know?," IZA Discussion Papers 6423, Institute for the Study of Labor (IZA).
  9. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, vol. 11, pages 109-149, 05.
  10. Lührmann, Melanie & Weiss, Matthias, 2010. "The effect of working time and labor force participation on unemployment: A new argument in an old debate," Economic Modelling, Elsevier, vol. 27(1), pages 67-82, January.

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