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Employment Effects of Payroll Tax Subsidies

Author

Listed:
  • Matthias Collischon
  • Kamila Cygan-Rehm
  • Regina T. Riphahn
Abstract
This paper exploits several reforms of wage subsidies in the framework of the German Minijob program to investigate substitution and complementarity relationships between subsidized and non-subsidized labor demand. We apply an instrumental variables approach and use administrative data on German establishments for the period 1999-2014. Particularly in small establishments (0-9 employees), subsidized Minijob employment comprises large shares of the work force, on average over 40 percent. For these establishments, robust evidence shows that increasing the subsidization of Minijob employment crowds out non-subsidized employment. Our results imply that Minijob employment in 2014 may have eliminated more than 0.5 million unsubsidized employment relationships just in small establishments.

Suggested Citation

  • Matthias Collischon & Kamila Cygan-Rehm & Regina T. Riphahn, 2018. "Employment Effects of Payroll Tax Subsidies," CESifo Working Paper Series 7111, CESifo.
    • Handle: RePEc:ces:ceswps:_7111
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    Cited by:

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    2. Demyanov V. G., 2021. "Entrepreneurial risks in the Russian economy," Russian Journal of Social Sciences and Humanities, Omsk Humanitarian Academy, vol. 15(1), pages 180-186, March.
    3. Palmeira, Rafael & Pindado, Julio & Requejo, Ignacio, 2023. "How does employment protection legislation affect labor investment inefficiencies?," Research in International Business and Finance, Elsevier, vol. 66(C).
    4. Kunaschk, Max, 2024. "The effects of minimum wages on employment and prices—Evidence from the hairdressing sector," Labour Economics, Elsevier, vol. 88(C).
    5. Gabriela Galassi, 2021. "Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform," Staff Working Papers 21-15, Bank of Canada.
    6. Muraközy, Balázs & Telegdy, Álmos, 2023. "The effects of EU-funded enterprise grants on firms and workers," Journal of Comparative Economics, Elsevier, vol. 51(1), pages 216-234.
    7. Galassi, Gabriela, 2021. "Labor Demand Response to Labor Supply Incentives: Lessons from the German Mini-Job Reform," IZA Discussion Papers 14248, Institute of Labor Economics (IZA).
    8. Seerar Westerberg, Hans, 2021. "Are payroll tax cuts absorbed by insiders? Evidence from the Swedish retail industry," HFI Working Papers 20, Institute of Retail Economics (Handelns Forskningsinstitut).

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    More about this item

    Keywords

    wage subsidy; Minijob; labor demand; substitution effect; crowding out effect; displacement effect; employment; payroll tax;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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