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Employment Effects of Payroll Tax Subsidies

Matthias Collischon, Kamila Cygan-Rehm () and Regina Riphahn ()
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Kamila Cygan-Rehm: Leibniz-Institut für Bildungsverläufe (LIfBi)

No 13037, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 percent. 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.

Keywords: wage subsidy; Minijob; labor demand; substitution effect; crowding out effect; displacement effect; employment; payroll tax (search for similar items in EconPapers)
JEL-codes: C26 J21 J23 J38 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2020-03
New Economics Papers: this item is included in nep-eur, nep-lma, nep-pbe and nep-pub
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Forthcoming in: Small Business Economics

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Related works:
Working Paper: Employment effects of payroll tax subsidies (2020) Downloads
Working Paper: Employment Effects of Payroll Tax Subsidies (2018) Downloads
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