Household Labor Supply Effects of Low-Wage Subsidies in Germany

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Household Labor Supply Effects of Low-Wage Subsidies in Germany

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Bonin, Holger () (IZA Bonn)
Kempe, Wolfram (IZA Bonn)
Schneider, Hilmar (IZA Bonn)

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Abstract

This research evaluates the impact on German household labor supply of various subsidy schemes proposed to foster low-wage employment. Using data from the German Socio- Economic Panel, we estimate a discrete choice model of household labor supply. On the basis of the estimated labor supply parameters of husbands and wives, we simulate participation and hours effects of different policies raising low labor earnings at the individual and household levels. In all cases, the labor supply effect is very moderate. Subsidies to individuals promote part-time employment, in particular of second earners, while subsidies based on low household income drive the better qualified partner out of the labor market so that the total number of labor market participants even declines.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 637.

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Length: 20 pages
Date of creation: Nov 2002
Date of revision:
Handle: RePEc:iza:izadps:dp637

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Find related papers by JEL classification:
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

This paper has been announced in the following NEP Reports:

NEP-ALL-2002-12-09 (All new papers)
NEP-DCM-2002-12-09 (Discrete Choice Models)
NEP-PBE-2002-12-09 (Public Economics)

References listed on IDEAS
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Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January. [Downloadable!] (restricted)
Hausman, Jerry & Ruud, Paul, 1984. "Family Labor Supply with Taxes," American Economic Review, American Economic Association, vol. 74(2), pages 242-48, May. [Downloadable!] (restricted)
Jerry A. Hausman & Paul Ruud, 1984. "Family Labor Supply With Taxes," NBER Working Papers 1271, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

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(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.)

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Bonin, Holger & Kempe, Wolfram & Schneider, Hilmar, 2002. "Kombilohn oder Workfare? Zur Wirksamkeit zweier arbeitsmarktpolitischer Strategien (Wage Subsidies vs. Workfare: On the Effectiveness of Alternative Strategies to Promote Low-Skilled Employment in Ger," IZA Discussion Papers 587, Institute for the Study of Labor (IZA). [Downloadable!]
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