Creating Low Skilled Jobs by Subsidizing Market-Contracted Household Work

32 Pages Posted: 12 Jan 2004

See all articles by Tilman Brück

Tilman Brück

IGZ - Leibniz Institute of Vegetable and Ornamental Crops; ISDC - International Security and Development Center; IZA Institute of Labor Economics

John P. Haisken-DeNew

University of Melbourne - Melbourne Institute: Applied Economic & Social Research; McMaster University, Faculty of Social Sciences, Department of Economics

Klaus F. Zimmermann

Global Labor Organization (GLO); UNU-MERIT; Maastricht University, Department of Economics; Free University Berlin; University of Bonn; Centre for Economic Policy Research (CEPR); Journal of Population Economics

Date Written: December 2003

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

JEL Classification: D13, H24, J23, K42

Suggested Citation

Brück, Tilman and Haisken-DeNew, John P. and Zimmermann, Klaus F., Creating Low Skilled Jobs by Subsidizing Market-Contracted Household Work (December 2003). Available at SSRN: https://ssrn.com/abstract=486008 or http://dx.doi.org/10.2139/ssrn.486008

Tilman Brück

IGZ - Leibniz Institute of Vegetable and Ornamental Crops ( email )

Theodor-Echtermeyer-Str. 1
Grossbeeren, 14979
Germany

HOME PAGE: http://www.igzev.de

ISDC - International Security and Development Center ( email )

Friedrichstr. 88
Berlin, 10117
Germany

HOME PAGE: http://www.isd-center.org

IZA Institute of Labor Economics

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

John P. Haisken-DeNew

University of Melbourne - Melbourne Institute: Applied Economic & Social Research

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia

McMaster University, Faculty of Social Sciences, Department of Economics ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Klaus F. Zimmermann (Contact Author)

Global Labor Organization (GLO) ( email )

Bonn
Germany

HOME PAGE: http://https://glabor.org/

UNU-MERIT ( email )

Keizer Karelplein 19
Maastricht, 6211TC
Netherlands

Maastricht University, Department of Economics ( email )

P.O. Box 616
Maastricht, Limburg 6200MD
Netherlands

University of Bonn

Postfach 2220
Bonn, D-53012
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Journal of Population Economics

Tiergartenstr. 17
D-69121 Heidelberg
Germany

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