Start-Up Subsidies in East Germany: Finally, a Policy that Works?

The German government has spent between 7bn and 11bn Euro per year on active labor market policies (ALMP) in East Germany in the last decade. The effectiveness of the most important programs (in terms of participants and spending) such as job-creation schemes and vocational training has been evaluated quite thoroughly in recent years. The results are disappointing, indicating that nearly all of these ‘traditional’ programs have to be rated as a failure. In light of these findings, policies to encourage unemployed people to become self-employed gained increasing importance. We present first evidence on the effectiveness of two start-up programs in East Germany. Our findings – even though partly preliminary – are rather promising, showing that these programs increase employment chances and earnings of participants. Hence, start-up subsidies might work even in a labor market with structural problems such as the one in East Germany.East Germany, effectiveness, evaluation, start-up subsidies, self-employment

Income support systems, labor market policies and labor supply: the German experience

In view of the demographic trends, most EU countries face the problem of a declining work force in the future. Understanding the interaction between income support systems (such as unemployment benefits, social assistance, early retirement and pension systems) and total labor supply is of crucial importance to combat problems and ensure economic growth in the future. The German labor market has been plagued by high and persistent unem­ployment in the last two decades in combination with a relatively low labor force participation of women. This created a situation where labor market reforms were unavoidable. The speed and depth of the reforms are remark­able, mainly aimed at activating people by increasing their incentives to take up work. The aim of this paper is to give a brief overview of the German income support systems and labor market polices, their recent reforms and—where already possible—effects of these reforms. Overall, Germany seems to be on the right track. The recent reforms helped to tackle some labor market problems but also created high political unrest. It remains to be seen how future governments react to worsened economic conditions in light of these experiences.Unemployment; Labor force participation; labor supply; benefit systems; public policy

Optimal control with switches in the objective functional

This note offers a proof of the necessary conditions for optimal control problems that involve a finite number of discrete switches in the objective functional over the planning horizon.necessary conditions

Income Support Systems, Labor Market Policies and Labor Supply: The German Experience

In view of the demographic trends, most EU countries face the problem of a declining work force in the future. Understanding the interaction between income support systems (such as unemployment benefits, social assistance, early retirement and pension systems) and total labor supply is of crucial importance to combat problems and ensure economic growth in the future. The German labor market has been plagued by high and persistent unemployment in the last two decades in combination with a relatively low labor force participation of women. This created a situation where labor market reforms were unavoidable. The speed and depth of the reforms are remarkable, mainly aimed at activating people by increasing their incentives to take up work. The aim of this paper is to give a brief overview of the German income support systems and labor market polices, their recent reforms and – where already possible – effects of these reforms. Overall, Germany seems to be on the right track. The recent reforms helped to tackle some labor market problems but also created high political unrest. It remains to be seen how future governments react to worsened economic conditions in light of these experiences.unemployment, labor force participation, labor supply, benefit systems, public policy

The microeconometric estimation of treatment effects : an overview

Vocational training programmes have been the most important active labour market policy instrument in Germany in the last years. However, the still unsatisfying situation of the labour market has raised doubt on the efficiency of these programmes. In this paper, we analyse the effects of the participation in vocational training programmes on the duration of unemployment in Eastern Germany. Based on administrative data for the time between the October 1999 and December 2002 of the Federal Employment Administration, we apply a bivariate mixed proportional hazards model. By doing so, we are able to use the information of the timing of treatment as well as observable and unobservable influences to identify the treatment effects. The results show that a participation in vocational training prolongates the unemployment duration in Eastern Germany. Furthermore, the results suggest that locking-in effects are a serious problem of vocational training programmes. JEL Classification: J64, J24, I28, J6

Is Social Security behind the Collapse of Personal Saving?

This paper considers the quantitative role of growth in the size of the social security program in contributing to the collapse of personal saving in the U.S. over the last few decades. Using a calibrated, general equilibrium life-cycle model this paper shows that social security may not be to blame. Specifically, the model predicts that a 50-percent increase in the social security tax rate (as in the U.S. over the last half century) produces a modest decline in the personal saving rate from 10 percent down to 9.6 percent. This result runs counter to some popular opinion.NIPA personal saving rate, social security, life-cycle permanent-income model, general equilibrium calibration

OUTWARD FDI AND HOME-COUNTRY PERFORMANCE: EVIDENCE FROM ITALIAN MANUFACTURING AND SERVICE FIRMS

How does outward foreign direct investment (FDI) affect employment and productivity growth in the home country? Does the impact of outward investment differ among manufacturing and service sectors? In this paper, we analyze the effects of investing abroad using firm-level data for Italy in the period 2003-2006. We adopt matching techniques in combination with a difference in difference estimator in order to investigate the causal effect on domestic employment and productivity of becoming multinational. Preliminary results suggest that, on average, Italian outward FDI has limited effects on the domestic employment and performance of internationalizing firms. However, results differ significantly according to the sector (manufacturing versus services) in which the MNEs operate. In particular, we find that whereas in the manufacturing sector, outward FDI tends to strengthen both productivity and to a lesser extent employment, in the service sector there is a negative effect on both employment (two years after the investment) and productivity

Evaluating the German "Mini-Job" Reform Using a True Natural Experiment

Increasing work incentives for people with low incomes is a common topic in the policy debate across European countries. The "Mini-Job" reform in Germany - introduced on April 1, 2003 - can be seen in line with these policies, exempting labour income below a certain threshold from taxes and employees' social security contributions. We carry out an ex-post evaluation to identify the short-run effects of this reform. Our identification strategy uses an exogenous variation in the interview months in the German Socio-Economic Panel, that allows us to distinguish groups that are (or are not) affected by the reform. To account for seasonal effects we additionally use a difference-in-differences strategy. The results show that the short-run effects of the reform are limited. We find no significant short-run effects for marginal employment. However, there is evidence that single men who are already employed react immediately and increase secondary job holding.Evaluation, natural experiment, difference-in-differences, marginal employment