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Making Work Pay for the Elderly Unemployed: Evaluating Alternative Policy Reforms for Germany

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  • Peter Haan
  • Viktor Steiner

Abstract

We evaluate three policy reforms targeted at older unemployed people: (i) an hourly wage subsidy, (ii) an in-work credit, and (iii) a subsidy of social security contributions on low wages. The work incentive, labour supply and welfare effects of these hypothetical reforms are analysed on the basis of a detailed micro-simulation model for Germany which includes a structural household labour supply model. We find that the simulated labour supply effects of the three policy reforms would be rather similar and of moderate size, ranging between 20,000 and 30,000 older women and between 10,000 and 20,000 older men. Our results also suggest that the hourly wage subsidy yields the highest welfare gains.

Suggested Citation

  • Peter Haan & Viktor Steiner, 2006. "Making Work Pay for the Elderly Unemployed: Evaluating Alternative Policy Reforms for Germany," Discussion Papers of DIW Berlin 641, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp641
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    References listed on IDEAS

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    1. Bargain, Olivier & Orsini, Kristian, 2006. "In-work policies in Europe: Killing two birds with one stone?," Labour Economics, Elsevier, vol. 13(6), pages 667-697, December.
    2. Peter Haan, 2006. "Much ado about nothing: conditional logit vs. random coefficient models for estimating labour supply elasticities," Applied Economics Letters, Taylor & Francis Journals, vol. 13(4), pages 251-256.
    3. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
    4. Olivier Bargain & Marco Caliendo & Peter Haan & Kristian Orsini, 2010. "“Making work pay” in a rationed labor market," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(1), pages 323-351, January.
    5. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    6. Peter Haan & Michal Myck, 2007. "Apply with Caution: Introducing UK-Style In-Work Support in Germany," Fiscal Studies, Institute for Fiscal Studies, vol. 28(1), pages 43-72, March.
    7. Creedy, John & Duncan, Alan, 2002. " Behavioural Microsimulation with Labour Supply Responses," Journal of Economic Surveys, Wiley Blackwell, vol. 16(1), pages 1-39, February.
    8. Steiner, Viktor, 2001. " Unemployment Persistence in the West German Labour Market: Negative Duration Dependence or Sorting?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(1), pages 91-113, February.
    9. V. Joseph Hotz, 2003. "The Earned Income Tax Credit," NBER Chapters,in: Means-Tested Transfer Programs in the United States, pages 141-198 National Bureau of Economic Research, Inc.
    10. Viktor Steiner & Peter Haan & Katharina Wrohlich, 2005. "Dokumentation des Steuer-Transfer-Mikrosimulationsmodells STSM 1999 - 2002," Data Documentation 9, DIW Berlin, German Institute for Economic Research.
    11. Olivier Bargain & Marco Caliendo & Peter Haan & Kristian Orsini, 2005. "'Making Work Pay' in a Rationed Labour Market: The Mini-Job Reform in Germany," Discussion Papers of DIW Berlin 536, DIW Berlin, German Institute for Economic Research.
    12. Richard Blundell & Howard Reed & Thomas M. Stoker, 1999. "Interpreting aggregate wage growth," IFS Working Papers W99/13, Institute for Fiscal Studies.
    13. Andreas Ammermüller & Bernhard Boockmann & Michael Maier & Thomas Zwick, 2006. "Eingliederungszuschüsse und Entgeltsicherung für Ältere: Analysen auf Basis natürlicher Experimente," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 75(3), pages 49-66.
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    Citations

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    Cited by:

    1. Ronny Freier & Viktor Steiner, 2007. ""Marginal Employment": Stepping Stone or Dead End? Evaluating the German Experience," Discussion Papers of DIW Berlin 744, DIW Berlin, German Institute for Economic Research.
    2. repec:eme:ceapzz:s0573-855520140000293006 is not listed on IDEAS
    3. Viktor Steiner, 2007. "Beschäftigungsförderung und Einkommenssicherung im Niedriglohnbereich: Wege und Irrwege," Discussion Papers of DIW Berlin 747, DIW Berlin, German Institute for Economic Research.
    4. Müller, Kai-Uwe & Steiner, Viktor, 2010. "Labor Market and Income Effects of a Legal Minimum Wage in Germany," IZA Discussion Papers 4929, Institute for the Study of Labor (IZA).
    5. Michał Myck, 2010. "Wages and Ageing: Is There Evidence for the 'Inverse-U' Profile?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(3), pages 282-306, June.
    6. Freier, Ronny & Steiner, Viktor, 2007. "‘Marginal Employment’: Stepping Stone or Dead End? Evaluating the German Experience," IZA Discussion Papers 3175, Institute for the Study of Labor (IZA).
    7. Peter Haan & Viktor Steiner, 2007. "Mehr Beschäftigung durch Subventionierung der Sozialbeiträge? Eine empirische Evaluation aktueller Reformvorschläge," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 8(4), pages 378-388, November.
    8. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis,in: Handbook of Microsimulation Modelling, volume 127, pages 167-221 Emerald Publishing Ltd.

    More about this item

    Keywords

    in-work support; wage subsidies; unemployment; elderly workers;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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