Creating Low Skilled Jobs by Subsidizing Market-Contracted Household Work

Tilman Brück, John de New and Klaus Zimmermann ()

No 958, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We analyze the determinants of household work contracted in the German shadow economy. The German socio-economic household panel, which enumerates casual domestic employment, is used to estimate the demand for such household work. The regressors include regional wage rates, household income and several control variables for household composition. We find that the demand for household work in the shadow economy is very income elastic. This suggests that targeted wage subsidies, linked to household work agencies, would be very effective in raising the legal demand for domestic help. A wage subsidy of 50% of wage costs could thus establish up to 500,000 new jobs for previously unemployed or non-working low skilled workers. The net fiscal costs of such a scheme are about 6.200 Euro per full-time job. In addition, society benefits from more law enforcement and from a raised female labor supply, especially by highly qualified mothers.

Keywords: labor demand; wage subsidy; household services; low skilled unemployment; shadow economy; GSOEP (search for similar items in EconPapers)
JEL-codes: D13 H24 J23 K42 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2003-12
New Economics Papers: this item is included in nep-law and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published - published in: Applied Economics, 2006, 38 (8), 899-911

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Related works:
Journal Article: Creating low skilled jobs by subsidizing market-contracted household work (2006)
Working Paper: Creating Low-Skilled Jobs by Subsidising Market-Contracted Household Work (2004)
Working Paper: Creating Low Skilled Jobs by Subsidising Market-Contracted Household Work (2003)
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