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

27 Pages Posted: 8 Apr 2011  

Olivier Bargain

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

Herwig Immervoll

World Bank, Europe and Central Asia; Organization for Economic Co-Operation and Development (OECD) - Social Policy Division; 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

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

Sebastian Siegloch

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

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 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

Olivier Bargain

IZA Institute of Labor Economics ( email )

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

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland
+353 1 716 8357 (Phone)
+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

Herwig Immervoll

World Bank, Europe and Central Asia ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

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

2 rue Andre Pascal
Paris Cedex 16, 75775
France
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(33 1) 44 30 61 78 (Fax)

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IZA Institute of Labor Economics ( email )

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

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ISER Institute for Social and Economic Research ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

HOME PAGE: http://www.iser.essex.ac.uk/people/research-associates

University of Canberra - National Centre for Social and Economic Modelling (NATSEM) ( email )

Canberra, ACT 2601
AUSTRALIA

HOME PAGE: http://www.canberra.edu.au/centres/natsem/people/associates/herwig-immervoll

United Nations - European Centre for Social Welfare Policy and Research ( email )

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Vienna, A1010
Austria

HOME PAGE: http://www.euro.centre.org

Andreas Peichl (Contact Author)

Centre for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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

Mannheim 68131
Germany

IZA Institute of Labor Economics ( email )

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

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

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Sebastian Siegloch

IZA Institute of Labor Economics ( email )

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

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

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

United States

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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