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Can public employment subsidies render the German construction sector weather proof?

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  • Melanie Arntz
  • Ralf Wilke

Abstract

In order to confine excessive levels of temporary layoffs, US firms are taxed - albeit incompletely - according to the unemployment insurance benefits claimed by their laid off workers. In contrast, German construction firms are not charged according to their layoff history and should thus have much higher layoff incentives. However, in case of a weather-induced shortfall of work, a firm's workforce is eligible for a partial subsidy to their employment costs. The level of this subsidy was subject to several reforms throughout the 1990s which provides a unique opportunity for examining the empirical link between layoff incentives and layoff rates. Our analysis is based on large individual administrative data merged with information about local weather conditions and the business cycle. We observe economically plausible effects: the higher the subsidy to employment costs, the less layoffs occur and the less weather-dependent is employment.

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Paper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 09/06.

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Handle: RePEc:not:notecp:09/06

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Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD
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Keywords: panel data; temporary layoffs; employment stability;

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  1. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  2. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-57, October.
  3. Card, David & Levine, Phillip B., 1994. "Unemployment insurance taxes and the cyclical and seasonal properties of unemployment," Journal of Public Economics, Elsevier, vol. 53(1), pages 1-29, January.
  4. Roed, Knut & Nordberg, Morten, 2003. "Temporary layoffs and the duration of unemployment," Labour Economics, Elsevier, vol. 10(3), pages 381-398, June.
  5. repec:iab:iabmit:v:28:i:2:p:171-194 is not listed on IDEAS
  6. Grady, Patrick & Kapsalis, Constantine, 2002. "The Approach to Seasonal Unemployment in the Nordic Countries: A Comparison with Canada," MPRA Paper 2991, University Library of Munich, Germany.
  7. Solomou, S. & Wu, W., 1997. "The Impact of Weather on the Construction Sector Output Variations, 1955-1989," Cambridge Working Papers in Economics 9722, Faculty of Economics, University of Cambridge.
  8. S. Jurajda, 2004. "Recalls and unemployment insurance taxes," Applied Economics Letters, Taylor & Francis Journals, vol. 11(10), pages 651-656.
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