Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/18387
Authors: 
Bargain, Olivier
Caliendo, Marco
Haan, Peter
Orsini, Kristian
Year of Publication: 
2005
Series/Report no.: 
DIW Discussion Papers 536
Abstract: 
To tackle mass unemployment and increase participation rates, the German government over recent years has mainly focused on supply side strategies, including 'making work pay' policies. The 2003 Mini-Job reform introduced an extended subsidy of social security contributions for low wage workers. In this paper, we evaluate the employment effects of this reform using a behavioural tax-benefit microsimulation model. Ex-ante micro policy evaluations based on labour supply models usually ignore involuntary unemployment. This leads to biased estimates of labour supply elasticities and erroneous predictions of the effects of the measure. This aspect is all the more important in a country like Germany, characterized by high unemployment. In this analysis we evaluate the employment effects of the Mini-Job reform by controlling for involuntary unemployment through a double-hurdle model. When focusing on the main labour force, we show that the Mini-Job reform has only a small positive effect on the extensive margin, which is outweighed by a reduction of working hours at the intensive margin.
Subjects: 
Tax-benefit Systems
Microsimulation
Household Labour Supply
Multinomial Logit
Involuntary Unemployment
JEL: 
J22
H31
C25
C52
Document Type: 
Working Paper

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