Discussion Paper Details

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Title: Creating Low-Skilled Jobs by Subsidising Market-Contracted Household Work

Author(s): Tilman Brück, John P Haisken-DeNew and Klaus F Zimmermann

Publication Date: February 2004

Keyword(s): gsoep, household services, labour demand, low skilled unemployment, shadow economy and wage subsidy

Programme Area(s): Labour Economics

Abstract: We analyse 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 an increased female labour supply, especially of highly qualified mothers.

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Bibliographic Reference

Brück, T, Haisken-DeNew, J and Zimmermann, K. 2004. 'Creating Low-Skilled Jobs by Subsidising Market-Contracted Household Work'. London, Centre for Economic Policy Research.