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'Making Work Pay' in a Rationed Labour Market: The Mini-Job Reform in Germany

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Author Info

  • Olivier Bargain
  • Marco Caliendo
  • Peter Haan
  • Kristian Orsini

Abstract

To tackle mass unemployment and increase participation rates, the German government over recent years has mainly focused on supply side strategies, including 'making work pay' policies. The 2003 Mini-Job reform introduced an extended subsidy of social security contributions for low wage workers. In this paper, we evaluate the employment effects of this reform using a behavioural tax-benefit microsimulation model. Ex-ante micro policy evaluations based on labour supply models usually ignore involuntary unemployment. This leads to biased estimates of labour supply elasticities and erroneous predictions of the effects of the measure. This aspect is all the more important in a country like Germany, characterized by high unemployment. In this analysis we evaluate the employment effects of the Mini-Job reform by controlling for involuntary unemployment through a double-hurdle model. When focusing on the main labour force, we show that the Mini-Job reform has only a small positive effect on the extensive margin, which is outweighed by a reduction of working hours at the intensive margin.

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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 536.

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Length: 25 p.
Date of creation: 2005
Date of revision:
Publication status: Published in: Journal of Population Economics 23 (2009) No.1, 323-351
Handle: RePEc:diw:diwwpp:dp536

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Related research

Keywords: Tax-benefit system; Microsimulation; Household labour supply; Multinomial logit; Involuntary unemployment;

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References

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  1. Euwals, Rob & van Soest, Arthur, 1999. "Desired and actual labour supply of unmarried men and women in the Netherlands," Labour Economics, Elsevier, vol. 6(1), pages 95-118, March.
  2. Hogan, Vincent, 2004. "The welfare cost of taxation in a labour market with unemployment and non-participation," Labour Economics, Elsevier, vol. 11(4), pages 395-413, August.
  3. Bargain, Olivier & Orsini, Kristian, 2004. "In-Work Policies in Europe: Killing Two Birds with One Stone?," IZA Discussion Papers 1445, Institute for the Study of Labor (IZA).
  4. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  5. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 1-39, February.
  6. Guy Laroque & Bernard Salanie, 2002. "Labour market institutions and employment in France," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 17(1), pages 25-48.
  7. Blundell, Richard & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," Economic Journal, Royal Economic Society, vol. 97(388a), pages 44-64, Supplemen.
  8. Bingley, Paul & Walker, Ian, 1997. "The Labour Supply, Unemployment and Participation of Lone Mothers in In-Work Transfer Programmes," Economic Journal, Royal Economic Society, vol. 107(444), pages 1375-90, September.
  9. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  10. Peter Haan, 2006. "Much ado about nothing: conditional logit vs. random coefficient models for estimating labour supply elasticities," Applied Economics Letters, Taylor & Francis Journals, vol. 13(4), pages 251-256.
  11. Viktor Steiner & Katharina Wrohlich, 2004. "Work Incentives and Labor Supply Effects of the 'Mini-Jobs Reform' in Germany," Discussion Papers of DIW Berlin 438, DIW Berlin, German Institute for Economic Research.
  12. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  13. Blundell, Richard, 2000. "Work Incentives and 'In-Work' Benefit Reforms: A Review," Oxford Review of Economic Policy, Oxford University Press, vol. 16(1), pages 27-44, Spring.
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Citations

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Cited by:
  1. Stefan Boeters & Michael Feil, 2009. "Heterogeneous Labour Markets in a Microsimulation–AGE Model: Application to Welfare Reform in Germany," Computational Economics, Society for Computational Economics, vol. 33(4), pages 305-335, May.
  2. Viktor Steiner, 2007. "Beschäftigungsförderung und Einkommenssicherung im Niedriglohnbereich: Wege und Irrwege," Discussion Papers of DIW Berlin 747, DIW Berlin, German Institute for Economic Research.
  3. Schneider, Hilmar & Bonin, Holger, 2005. "Wohlfahrts- und Verteilungseffekte eines allgemeinen Freibetrags bei den Sozialabgaben (Welfare and distribution effects of a general fixed allowance for social insurance contributions)," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 38(4), pages 475-492.
  4. repec:iab:iabzaf:v:38:i:4:p:475-492 is not listed on IDEAS
  5. Peter Haan & Viktor Steiner, 2006. "Making Work Pay for the Elderly Unemployed: Evaluating Alternative Policy Reforms for Germany," Discussion Papers of DIW Berlin 641, DIW Berlin, German Institute for Economic Research.

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