Employment effects of payroll tax subsidies

Abstract

This paper exploits several reforms of wage subsidies in the framework of the German Minijob program to investigate substitution and complementarity relationships between subsidized and non-subsidized labor demand. We apply an instrumental variables approach and use administrative data on German establishments for the period 1999–2014. Particularly in small establishments (0–9 employees), subsidized Minijob employment comprises large shares of the work force, on average over 40%. For these establishments, robust evidence shows that increasing the subsidization of Minijob employment crowds out non-subsidized employment. Our results imply that Minijob employment in 2014 may have eliminated more than 0.5 million unsubsidized employment relationships just in small establishments. This represents an unintended and harmful consequence of the Minijob subsidy.

Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform

“…8 I furthermore consider the firm decision on both mini-jobs and regular jobs as being made jointly and not sequentially as these authors do to motivate their instrumental variable approach. As a result, I document not only a displacement of regular workers with taxadvantaged workers, as is the interpretation given in Collischon, Cygan-Rehm, and Riphahn (2018), but also an increase in the demand for non-tax-advantaged employment in establishments for which the expansion in tax benefits represents strong labor costs savings.…”

“…In this sense, I complement the literature on the demand-side effects of in-work benefits as I add to firm responses that are motivated by labor market frictions. 7 The work of Collischon, Cygan-Rehm, and Riphahn (2018) is closely related to this study as it tackles the same question and also uses the Mini-Job design. The main departure is that their study focuses on the statutory incidence of the tax benefit, whereas I consider the economic incidence.…”

Revisiting gender identity and relative income within households: A cautionary tale on the potential pitfalls of density estimators

“…If the earnings exceed this threshold, employers and employees pay social security contributions on the order of 20% each and the employee is additionally subject to standard income taxation. More information on marginal employment is available inCollischon et al (2020).…”

Family and career: an analysis across Europe and North America

“…But over time additional factors seem also to matter, particularly so in professions with more nonlinear wage structures (Bütikofer, Jensen and Salvanes, 2018). Fewer hours at work may reduce mothers' attachment to the labour force (Costa Dias, Joyce and Parodi, 2020), their probability of training (Blundell et al., 2021), promotion (Bronson and Thoursie, 2021), job opportunities (Jayachandran et al., 2023) or accessing a more permanent job position when working temporarily or in mini‐jobs (Collischon, Cygan‐Rehm and Riphahn, 2023).…”