Distributional Consequences of Labor-Demand Shocks: The 2008-09 Recession in Germany

27 Pages Posted: 8 Apr 2011

See all articles by Olivier Bargain

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Herwig Immervoll

Organization for Economic Co-Operation and Development (OECD) - Social Policy Division; World Bank, Europe and Central Asia; IZA Institute of Labor Economics; ISER Institute for Social and Economic Research; University of Canberra - National Centre for Social and Economic Modelling (NATSEM); United Nations - European Centre for Social Welfare Policy and Research

Andreas Peichl

ZEW – Leibniz Centre for European Economic Research; University of Mannheim - School of Economics (VWL); IZA Institute of Labor Economics; University of Essex - Institute for Social and Economic Research (ISER)

Sebastian Siegloch

University of Mannheim - Department of Economics; IZA Institute of Labor Economics; ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research; CESifo (Center for Economic Studies and Ifo Institute); University of Cologne - Cologne Centre for Public Economics (CPE)

Date Written: March 31, 2011

Abstract

The distributional consequences of the recent economic crisis are still broadly unknown. While it is possible to speculate which groups are likely to be hardest-hit, detailed distributional studies are still largely backward-looking due to a lack of real-time microdata. This paper studies the distributional and fiscal implications of output changes in Germany 2008-09, using data available prior to the economic downturn. We first estimate labor demand on 12 years of detailed, administrative matched employer-employee data. The distributional analysis is then conducted by transposing predicted employment effects of actual output shocks to household-level microdata. A scenario in which labor demand adjustments occur at the intensive margin (hour changes), close to the German experience, shows less severe effects on income distribution compared to a situation where adjustments take place through massive layoffs. Adjustments at the intensive margin are also preferable from a fiscal point of view. In this context we discuss the cushioning effect of the tax-benefit system and the conditions under which German-style work-sharing policies can be successful in other countries.

Keywords: labor demand, output shock, tax-benefit system, crisis, income distribution

JEL Classification: D58, J23, H24, H60

Suggested Citation

Bargain, Olivier and Bargain, Olivier and Immervoll, Herwig and Immervoll, Herwig and Peichl, Andreas and Siegloch, Sebastian, Distributional Consequences of Labor-Demand Shocks: The 2008-09 Recession in Germany (March 31, 2011). CESifo Working Paper Series No. 3403, Available at SSRN: https://ssrn.com/abstract=1803111 or http://dx.doi.org/10.2139/ssrn.1803111

Olivier Bargain

University College Dublin (UCD) ( email )

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IZA Institute of Labor Economics ( email )

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Herwig Immervoll

Organization for Economic Co-Operation and Development (OECD) - Social Policy Division ( email )

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Andreas Peichl (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

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University of Mannheim - School of Economics (VWL) ( email )

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Germany

University of Essex - Institute for Social and Economic Research (ISER)

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Colchester CO4 3SQ
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Sebastian Siegloch

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

ZEW – Leibniz Centre for European Economic Research - Corporate Taxation and Public Finance Research ( email )

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