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Creating Low Skilled Jobs by Subsidizing Market-Contracted Household Work

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  • Brück, Tilman

    ()
    (SIPRI)

  • Haisken-DeNew, John P.

    ()
    (Melbourne Institute of Applied Economic and Social Research)

  • Zimmermann, Klaus F.

    ()
    (IZA and University of Bonn)

Abstract

We analyze 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 a raised female labor supply, especially by highly qualified mothers.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 958.

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Length: 32 pages
Date of creation: Dec 2003
Date of revision:
Publication status: published in: Applied Economics, 2006, 38 (8), 899-911
Handle: RePEc:iza:izadps:dp958

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Keywords: labor demand; wage subsidy; household services; low skilled unemployment; shadow economy; GSOEP;

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References

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  1. Namkee Ahn & Sara La De Rica, 1997. "The underground economy in Spain: an alternative to unemployment?," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 29(6), pages 733-743.
  2. 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.
  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. Fortin, Bernard & Lacroix, Guy & Montmarquette, Claude, 2000. "Are Underground Workers More Likely to be Underground Consumers?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(466), pages 838-60, October.
  5. Annette Mummert & Friedrich Schneider, 2001. "The German Shadow Economy: Parted in a United Germany?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 58(3), pages 286-, July.
  6. Gronau, Reuben, 1987. "Home production -- A survey," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 4, pages 273-304 Elsevier.
  7. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier.
  8. 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.
  9. 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, University of Chicago Press, vol. 88(2), pages 328-48, April.
  10. 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.
  11. 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.
  12. 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.
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Citations

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Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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).
  8. Friedrich Schneider, 2009. "Size and Development of the Shadow Economy in Germany, Austria and Other oecd-Countries. Some Preliminary Findings," Revue économique, Presses de Sciences-Po, vol. 60(5), pages 1079-1116.
  9. 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).
  10. Friedrich Schneider, 2014. "Outside the State - the Shadow Economy and Shadow Economy Labor Force," CESifo Working Paper Series 4829, CESifo Group Munich.
  11. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 11, pages 109-149, 05.

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