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'Making Work Pay' in a Rationed Labour Market

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Author Info
Olivier Bargain () (IZA Bonn)
Marco Caliendo () (DIW Berlin and IZA Bonn)
Peter Haan () (DIW Berlin)
Kristian Orsini () (K.U. Leuven)

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Abstract

We assess the labour supply effects of two ‘making work pay' reforms in Germany. We provide evidence in favour of policies that distinguish between low effort and low productivity by targeting individuals with low wages rather than individuals with low earnings. In assessing the policies we account for demand-side constraints by using a double-hurdle model. We identify and decompose the potential bias of labour supply elasticities derived in standard unconstrained models. Although this bias is not significant when assessing policies which mainly target voluntarily unemployed workers (typically secondary earners), it is substantial for policies which affect groups with high shares of involuntary unemployment.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2033.

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Length: 30 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:iza:izadps:dp2033

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Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
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Web page: http://www.iza.org

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Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
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Related research
Keywords: tax-benefit systems microsimulation household labour supply multinomial logit involuntary unemployment double-hurdle

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Find related papers by JEL classification:
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. 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. [Downloadable!] (restricted)
  2. Blundell, Richard William & Ham, John & Meghir, Costas, 1987. "Unemployment and Female Labour Supply," CEPR Discussion Papers 149, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Blackwell Publishing, vol. 16(1), pages 1-39, February. [Downloadable!] (restricted)
  4. 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. [Downloadable!] (restricted)
    Other versions:
  5. 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. [Downloadable!]
  6. 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. [Downloadable!] (restricted)
  7. 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. [Downloadable!]
  8. Bargain O & Orsini K, 2004. "In-Work Policies in Europe: killing two birds with one stone?," EUROMOD Working Papers em4/04, EUROMOD at the Institute for Social and Economic Research. [Downloadable!]
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  9. 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.
  10. 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. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Peter Haan & Viktor Steiner, 2006. "Making Work Pay for the Elderly Unemployed: Evaluating Alternative Policy Reforms for Germany," IZA Discussion Papers 2424, Institute for the Study of Labor (IZA). [Downloadable!]
  2. 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. [Downloadable!]
  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. [Downloadable!]
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