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'Making Work Pay' in a Rationed Labour Market

Author

Listed:
  • Bargain, Olivier

    (University of Aix-Marseille II)

  • Caliendo, Marco

    (University of Potsdam)

  • Haan, Peter

    (DIW Berlin)

  • Orsini, Kristian

    (KU Leuven)

Abstract

We assess the labour supply effects of two 'making work pay' reforms in Germany. We provide evidence in favour of policies that distinguish between low effort and low productivity by targeting individuals with low wages rather than individuals with low earnings. In assessing the policies we account for demand-side constraints by using a double-hurdle model. We identify and decompose the potential bias of labour supply elasticities derived in standard unconstrained models. Although this bias is not significant when assessing policies which mainly target voluntarily unemployed workers (typically secondary earners), it is substantial for policies which affect groups with high shares of involuntary unemployment.

Suggested Citation

  • Bargain, Olivier & Caliendo, Marco & Haan, Peter & Orsini, Kristian, 2006. "'Making Work Pay' in a Rationed Labour Market," IZA Discussion Papers 2033, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp2033
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    References listed on IDEAS

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    More about this item

    Keywords

    multinomial logit; household labour supply; microsimulation; involuntary unemployment; tax-benefit systems; double-hurdle;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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