Labour Supply Effects of Tax Reforms in the Presence of Rationing: the Mini-job Reform in Germany

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 06.10.2005, 12:15 - 13:30


Presentation by 

Kristian Orsini (KU Leuven)


To tackle mass unemployment, the German government has over the recent years mainly focussed on a supply side strategy. Part of this is the 2003 mini-jobs reform which consists of an extended subsidy of social security contributions for the low wage workers. In this paper we argue that previous evaluations of this reform have a severe methodological drawback which is a general problem of analyses based on behavioral microsimulation models: the treatment of involuntary unemployed. This aspect is all the more important in a country like Germany, characterized by high unemployment. We suggest an evaluation of the mini-jobs reform by estimating the risk of involuntary unemployment together with a structural discrete choice labor supply model (double-hurdle model). When focusing on the main labor force, we show that the mini-job reform has only a small positive effect on the extensive margin which is outweigh by reduction of working hours on the intensive margin.

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