'Making Work Pay' in a Rationed Labor Market

30 Pages Posted: 24 Mar 2006

See all articles by Olivier Bargain

Olivier Bargain

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

Marco Caliendo

University of Potsdam; Institute for the Study of Labor (IZA)

Peter Haan

DIW Berlin, German Institute for Economic Research; IZA Institute of Labor Economics

Kristian Orsini

KU Leuven

Date Written: March 2006

Abstract

We assess the labor supply effects of two "making work pay" reforms in Germany. We provide evidence in favor 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 labor 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 labor supply, multinomial

JEL Classification: C25, C52, H31, J22

Suggested Citation

Bargain, Olivier and Caliendo, Marco and Haan, Peter and Orsini, Kristian, 'Making Work Pay' in a Rationed Labor Market (March 2006). IZA Discussion Paper No. 2033. Available at SSRN: https://ssrn.com/abstract=892827

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

Marco Caliendo

University of Potsdam ( email )

August-Bebel Strasse 89
Potsdam, 14482
Germany
+49(0)331/9773225 (Phone)
+49(0)331/9773210 (Fax)

HOME PAGE: http://www.uni-potsdam.de/en/empwifo/news.html

Institute for the Study of Labor (IZA) ( email )

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

Peter Haan

DIW Berlin, German Institute for Economic Research ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

IZA Institute of Labor Economics

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

Kristian Orsini (Contact Author)

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant
Belgium

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