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Employment effects of payroll tax subsidies

Author

Listed:
  • Matthias Collischon
  • Kamila Cygan-Rehm
  • Regina T. Riphahn

Abstract

This paper exploits several reforms of wage subsidies in the framework of the German Minijob program to investigate substitution and complementarity relationships between subsidized and non-subsidized labor demand. We apply an instrumental variables approach and use administrative data on German establishments for the period 1999-2014. Particularly in small establishments (0-9 employees), subsidized Minijob employment comprises large shares of the work force, on average over 40 percent. For these establishments, robust evidence shows that increasing the subsidization of Minijob employment crowds out non-subsidized employment. Our results imply that Minijob employment in 2014 may have eliminated more than 0.5 million unsubsidized employment relationships just in small establishments. This represents an unintended and harmful consequence of the Minijob subsidy.

Suggested Citation

  • Matthias Collischon & Kamila Cygan-Rehm & Regina T. Riphahn, 2020. "Employment effects of payroll tax subsidies," Working Papers 191, Bavarian Graduate Program in Economics (BGPE).
  • Handle: RePEc:bav:wpaper:191_collischoncyganrehmriphahn
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    Cited by:

    1. Gabriela Galassi, 2021. "Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform," Staff Working Papers 21-15, Bank of Canada.
    2. Galassi, Gabriela, 2021. "Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform," IZA Discussion Papers 14248, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    wage subsidy; Minijob; labor demand; substitution effect; crowding out effect; displacement effect; employment; payroll tax;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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