Working Paper: CEPR ID: DP4225
Authors: Tilman Brück; John P. Haisken-DeNew; Klaus F. Zimmermann
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.
Keywords: GSOEP; household services; labour demand; low-skilled unemployment; shadow economy; wage subsidy
JEL Codes: D13; H24; J23; K42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| targeted wage subsidy (J68) | demand for domestic help (J23) |
| household income (D19) | new jobs created (J23) |
| household income (D19) | demand for market-contracted household work (J29) |
| relative income (D31) | demand for household services (R22) |