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Creating Low Skilled Jobs by Subsidizing Market-Contracted Household Work

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Author Info
Brück, Tilman (DIW Berlin)
Haisken-DeNew, John P. (RWI Essen and IZA Bonn)
Zimmermann, Klaus F. () (IZA Bonn, University of Bonn and DIW Berlin)

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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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Publisher 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
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Handle: RePEc:iza:izadps:dp958

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

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Find related papers by JEL classification:
D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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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. Tilman Brück & John P. Haisken-DeNew & Klaus F. Zimmermann, 2002. "Förderung von Agenturen für haushaltsnahe Dienstleistungen schafft Arbeitsplätze für Geringqualifizierte," Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 69(23), pages 363-369. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
  3. Ahn, Namkee & De la Rica, Sara, 1997. "The Underground Economy in Spain: An Alternative to Unemployment?," Applied Economics, Taylor and Francis Journals, vol. 29(6), pages 733-43, June. [Downloadable!] (restricted)
  4. Jürgen Schupp, 2001. "Private Haushalte als Arbeitsgeber bleiben beschäftigungspolitisch von geringer Bedeutung : "Hausmädchenprivileg" überflüssig," Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 68(13), pages 201-210. [Downloadable!]
  5. 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.
  6. Suen, Wing, 1994. "Market-procured housework: The demand for domestic servants and female labor supply," Labour Economics, Elsevier, vol. 1(3-4), pages 289-302, September. [Downloadable!] (restricted)
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  7. Fortin, Bernard & Lacroix, Guy & Montmarquette, Claude, 2000. "Are Underground Workers More Likely to be Underground Consumers?," Economic Journal, Royal Economic Society, vol. 110(466), pages 838-60, October. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
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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. Melanie Lührmann & Matthias Weiss, 2006. "Market Work, Home Production, Consumer Demand and Unemployment among the Unskilled," MEA discussion paper series 06101, Mannheim Research Institute for the Economics of Aging (MEA), University of Mannheim. [Downloadable!]
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