Wage subsidy

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Wage subsidies and wage subsidies are target group-specific standard instruments of active labor market policy and differ according to the duration of benefits, the assessment basis, the type and scope of the group of beneficiaries and a purpose. They can be viewed as negative (wage-related) taxes and have a long tradition in active labor market policy.

General concept

Subsidized personnel costs are supposed to stabilize the disposable income and the demand for goods and return flows in the form of social security contributions and taxes have a positive influence on the macroeconomic cycle ( Nicholas Kaldor ; Arthur Pigou ). Wage subsidies and negative income tax serve to combat poverty, whereby not individual companies, as with the minimum wage , but all taxpayers are burdened. Rising labor productivity and lower social transfers in the medium term are also expected.

functionality

General wage subsidy.G.JPG
Model effect of a general wage subsidy
Marginal wage subsidy.G.JPG
Model effect of a marginal wage subsidy


The budget line is shifted from B to B sub . The marginal wage subsidy starts at point G 0 and creates four new employees in the model (n 0 <n). The fiscal welfare effects arise because of the demand-affecting output effects for Nicholas Kaldor, especially in the case of general (non-selective) wage subsidies. However, with a selective wage subsidy, the transfer fee is lower. Income effects are viewed as a macroeconomic control instrument, because additional household income flows directly into consumer demand due to the low savings rate. Due to the consumption function, wage subsidies act as an automatic stabilizer, because they smooth out economic fluctuations . There is a positive feedback loop between demand and employment, which continues in a weakened manner after each cycle. Wage cuts, on the other hand, put pressure on demand and prices, thus reducing profit prospects. The idea of ​​wage subsidies is that positive welfare effects can be demonstrated even with low labor demand elasticity.

Models and model tests

Following recommendations from the EU Commission and the OECD, the Netherlands and France first introduced wage subsidies. Combined wage concepts have been discussed in Germany since the mid-1990s . There are some simulation studies and model tests that differ in terms of the amount and modalities of funding, the respective target group, and costs and employment effects. To be tested u. a. Mainz model , Scharpf model ( Fritz W. Scharpf ), Magdeburg alternative , Hamburg model . The entry fee can be found in Section 16b SGB II and the Entry Fee Ordinance (ESGV) as an optional service in SGB II, but leads a shadowy existence.

criticism

The following objections are raised against wage subsidies:

  • The demand for labor is - due to the inflexible collective bargaining policy - too low;
  • the supply of work is inhibited because of the existing social security system (wage gap too small for single people, substitution and income effects).
  • Deadweight effects arise (Layard / Nickell / Jackman 1991);
  • Substitution effects do not dissolve (high leisure time preference of the lower income earners);
  • intersectoral displacement effects between companies occur (subsidized companies gain competitive advantages over non-subsidized companies);
  • Revolving door and rotation effects can be observed (unsubsidized workers would be replaced by subsidized workers as soon as the subsidy eligibility expires and only stopped again when further subsidies are available);
  • Economic multiplier effects are decisive for company decisions, rarely lower personnel costs.

The evaluation of subsidized personnel costs varies. Expectations of the positive effects on the labor market are high, but the effects achieved are minor. This may be due to the fact that before the labor market reforms in Germany, the transfer entitlements (from the existing social law) were too high. Long-term unemployment, on the other hand, did not resolve after the labor market reforms and the new profit opportunities for companies, but instead solidified. It is therefore questionable that wage subsidies can eliminate unemployment. The advantages of this labor market instrument may lie in other areas.

literature