‘Marginal employment’ and the demand for heterogeneous labour – elasticity estimates from a multi-factor labour demand model for Germany

Abstract

We develop a structural multi-factor labour demand model which distinguishes between eight labour categories including marginal employment, i.e. low-paying jobs with only a few working hours and partially exempted from employee's social security contributions. Using a new panel data set for Germany, the model is estimated both for the number of workers and total working hours. For unskilled and skilled workers in full-time employment, we find labour demand elasticities similar to previous estimates. Our new estimates of own-wage elasticities for marginal employment range between −0.13 (number of male workers in West Germany) to −1 (working hours for women).

Acknowlegdements

We thank Irwin Collier, Jornt Holtman, Irina Penner, Petra Zloczysti, Johannes Geyer, Damien Ientile, Kelly Ragan, Giacomo Pasini and participants of seminars at the IIES (Stockholm), at Ca'Foscari University (Venice) and the SUDSWEc Conference 2008 (Stockholm) for helpful comments on an earlier version of this article. Viktor Steiner also wants to thank the German Science Foundation (DFG) for funding under the project ‘Work Incentives, Earnings-Related Subsidies, and Employment in Low-Wage Labour Markets’. The usual disclaimer applies.

Notes

¹ For a discussion of the evolution of ME in Germany and some institutional background, see Freier and Steiner (2007).

² For a detailed data description see Freier and Steiner (2007).

³ Capital and output measures in the above specification always refer to the aggregate of East and West Germany, since the National Accounts do not provide regionally disaggregated data.

⁴ Detailed results for the SURE estimations as well as results for a Three-Stage Least Squares (3SLS) using lagged wages as instruments are available from the authors upon request.

⁵ Detailed estimation results for East Germany are contained in Freier and Steiner (2007).

⁶ Bootstrapped SE of estimated own-wage elasticities are reported in the Appendix.