Resource title

Marginal employment subsidization: a new concept and a reappraisal

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Resource description

In this paper, we attempt to renew the interest in marginal employment subsidies. Such subsidies are paid only for a firm's additional employment exceeding some reference level and create larger employment stimuli at lower fiscal costs than general wage subsidies for all workers. If the hiring of a new employee also entails subsidizing an incumbent worker (double marginal subsidization), the replacement of regular paid workers by outsourcing employment to newly established firms a standard critique of marginal employment subsidies can be avoided. This additional subsidy reduces the incentive to crowd out regular employment and results in even larger employment effects. Applying the subsidy scheme to the low-skill labor market in Germany, we show that employment can be substantially increased without imposing additional fiscal burden.

Resource author

Andreas Knabe, Ronnie Schöb, Joachim Weimann

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Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25752

Resource license

Adapt according to the presented license agreement and reference the original author.