“Making work pay” in a rationed labor market

• DOI: 10.1007/s00148-008-0220-9
• Publication Date: 2008-09-16T05:00:08Z
• Authors: Olivier Bargain; Marco Caliendo; Peter Haan; Kristian Orsini
• Keywords: multinomial logit; ddc:330; Beschäftigungseffekt; J22; 05 social sciences; microsimulation; 1. No poverty; tax-benefit systems; double-hurdle; Arbeitsmarktpolitik; Privater Haushalt; C52; Niedrigeinkommen; involuntary unemployment; household labour supply; 0502 economics and business; 8. Economic growth; C25; H31; Niedriglohn; Deutschland; Arbeitsangebot; Schätzung

This paper empirically analyzes the labor supply effects of two “making work pay” reforms in Germany. We provide evidence in favor of policies that distinguish between low effort and low productivity by targeting individuals with low wages rather than those with low earnings. We discuss our results more generally and with comparisons to the family-based tax credits in force in the US and the UK. For the evaluation of the policies, we apply a static structural labor supply framework and explicitly account for demand-side constraints by using a double-hurdle model.