'Making Work Pay' in a Rationed Labour Market

Olivier Bargain, Marco Caliendo (), Peter Haan () and Kristian Orsini ()
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Peter Haan: DIW Berlin

No 2033, IZA Discussion Papers from Institute for the Study of Labor (IZA)

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.

Keywords: tax-benefit systems; microsimulation; household labour supply; multinomial logit; involuntary unemployment; double-hurdle (search for similar items in EconPapers)
JEL-codes: C25 C52 H31 J22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm, nep-lab and nep-pbe
Date: 2006-03
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