Work-Sharing and the Fall of Unemployment in Germany

Work-Sharing and the Fall of Unemployment in Germany

Carlos Carrillo-Tudela a), Andrey Launov b) and Jean-Marc Robin c)

a)

University of Essex,

b)

University of Kent,

c)

Sciences Po & UCL

CEP-IFS, 26-28/10/2017

Carrillo-Tudela, Launov and Robin (

a)


b)

University of Kent,

c)

Sciences Po & UCL)Mini-jobs CEP-IFS, 26-28/10/2017 1 / 33

INTRODUCTION

Introduction

The fall of unemployment

The unemployment rate rose from 5.2% in January 1991 to 11.2% inJuly 2005, and then achieved its lowest level of 3.8% in June 2017.

Wage moderation and decentralisation of the wage setting processexplain the improvement of Germany’s competitiveness (seeDustmann, Fitzenberger, Schonberg and Spitz-Oener,JoEconPerspectives 2014).

However, there is little evidence that improved competitiveness is atthe heart of the reduction of unemployment.

What is the mechanism? and what role did the Hartz reformsplay?

We argue in this paper that unemployment fell in Germany because ofhardened conditions for unemployment and work sharing.


a)


b)

University of Kent,

c)


Introduction

Did mini-jobs lift employment?

BREMEN, Germany—Germany's job market may be the envy of astruggling Europe, but many Germans say their country's"Jobwunder," or jobs miracle, is cutting them out of the nation'seconomic success.

Germany's unemployment rate was unchanged for the seventhstraight month at a relatively low 6.9% in May, after seasonaladjustment. Yet nearly one in five working Germans, or about 7.4million people, hold a so-called "minijob," a form of marginalemployment that allows someone to earn up to €450($580) a monthfree of tax.

In industries from retail to health care, minijobs have been a boon,allowing employers to keep down labor costs. Minijob hourly wagesare usually low and the positions often don't come with the samebenefits as a regular job.

As much of Europe looks to the Continent's economic powerhouse forlessons on how to revive moribund labor markets, the proliferation ofthese low-wage jobs has sparked a vigorous debate in Germany aboutwhether enough workers are sharing in the nation's strong economicperformance.

Proponents of minijobs argue they offer stay-at-home parents,retirees and students a legal option to earn tax-free money and givebusinesses the flexibility to adjust their workforce according to need."Minijobs are ideal for people who want to work only a small numberof hours a week or a month," said Oliver Stettes, labor market expert atCologne Institute for Economic Research. They are attractive to

This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visithttp://www.djreprints.com.

http://www.wsj.com/articles/SB10001424127887324682204578512782697519080

EUROPE

'Minijobs' Lift Employment But MaskGerman Weakness

Minijobs are attractive to retailers and restaurants, like those above, who must staff peak and lowperiods. DPA/ZUMA PRESS

May 29, 2013 5:08 p.m. ET

By JAMES ANGELOS and NINA ADAM

Mini-jobs are a form oflow-pay (< 400€), part-timeemployment that is not subjectto income taxation.

The Hartz reforms facilitatedthe creation of mini-jobs andincreased incentives forworkers to take them.


a)


b)

University of Kent,

c)


Introduction

The rise of moonlighting with a mini-job

Yes, the stock of mini-jobs grew by 76.1% between 1999 and 2014.

Yes, by 2014 there were more workers who had a mini-job as primaryemployment than unemployed workers (7.4% vs 6.8% of the labourforce).

However, most of the increase in the number of mini-jobs isaccounted by multiple job-holding (moonlighting).

We argue that moonlighting is a form of “Uberisation” of theeconomy which helped some skilled workers to accept wagemoderation.


a)


b)

University of Kent,

c)


Introduction

The Hartz reforms (in a nutshell)

Hartz I (1/1/2003) aims at deregulating temporary employment.Personal Service Agencies (PSAs) were introduced, which areprivately managed and funded by local employment agencies,implementing on-the-job training, and facilitating work for the elderly.

Hartz II (1/1/2003) reformed marginal employment (mini- andmidi-jobs) and o↵ered new start-up subsidy for the unemployed. Easyto create a mini-job via the Minijobzentrale.

Hartz III (1/1/2004) reorganized the Federal Employment Agencyand local employment o�ces.

Hartz IV (1/1/2005) reformed the unemployment and welfare benefitsystem completely, increasing the need for non-employed individualsto accept low-paying jobs.


a)


b)

University of Kent,

c)


Introduction

What can we learn from the German experience that couldbe useful, say to France?

Civilian labour force as % population 15-64 Unemployment rate Hours worked (millions)

Average hours worked per person employed GDP per hour worked Average annual wage (FT equivalent)

Source: OECD


a)


b)

University of Kent,

c)


Introduction

Literature

On the role Hartz reforms on unemployment: Caliendo and Wrohlich(2010), Rinne and Zimmermann (2011, 2013), Fahr and Sunde(2009), Launov and Waelde (2012), Krause and Uhlig (2012), Krebsand Sche↵el (2013), Caliendo, Kunn and Uhlendor↵ (2016).

The role of part-time and marginal employment: Burda (2016),Burda and Seele (2016), Rothe and Walde (2016)


a)


b)

University of Kent,

c)


THE MECHANISM OF UNEMPLOYMENTREDUCTION

The mechanism of unemployment reduction

Data

Sample of Integrated Labour Market Biographies (SIAB). 2%random sample from all registered (formal) employment and allactively seeking unemployed workers who receive unemploymentbenefits.

German Socio-Economic Panel (GSOEP)

Prime-aged workers between 25 and 54 years old.

Registered unemployment consists of those individuals who areregistered with the labour o�ce and have been actively searching fora job within the last 2 weeks irrespective of their benefit status.

Non-participants are those workers who are not in registeredunemployment or any form of registered employment (FT, PT orME). Non-participation = unregistered non-employment.


a)


b)

University of Kent,

c)



Trends in main stocks (primary employment)

Rise in labour sharing.

Participation Down (or flattish) Up

2000 2002 2004 2006 2008 2010 2012 20140

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

0.5

0.52

0.54

0.56

0.58

0.6

0.62

0.64

0.66

0.68

0.7

Unemployment - left axisNon-participation - left axisFull-time Employment - right axis

2000 2002 2004 2006 2008 2010 2012 20140

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

% o

f 25-5

4 p

opula

tion

Part-time Employment

Marginal Employment

What are the flows building these stocks?


a)


b)

University of Kent,

c)



The ins and outs of unemployment (average monthly flows)

The unemployment rate decreased because many unemployed individualsstopped being registered as unemployed.

Inflows Outflows Inflows - Outflows

1999 2002 2005 2008 2011 20140

50

100

150

200

250

300

350

Th

ou

san

ds

from FT

from PT

from ME

from Nonparticipation

1999 2002 2005 2008 2011 20140

50

100

150

200

250

300

350

Th

ou

san

ds

to FT

to PT

to ME

to Nonparticipation

1999 2002 2005 2008 2011 2014−50

−40

−30

−20

−10

0

10

20

30

40

50

Th

ou

san

ds

FT

PT

ME

Nonparticipation


a)


b)

University of Kent,

c)



The ins and outs of non-participation

Non-participation acted as a siphon that moved unemployed individualsback into employment in the form of contributing part-time jobs andmini-jobs.


1999 2002 2005 2008 2011 20140

50

100

150

200

250

300

350

Th

ou

san

ds

from FT

from PT

from ME

from Unemployment

1999 2002 2005 2008 2011 20140

50

100

150

200

250

300

350T

ho

usa

nd

s

to FT

to PT

to ME

to Unemployment

1999 2002 2005 2008 2011 2014−30

−15

0

15

30

45

60

Th

ou

san

ds

FT

PT

ME

Unemployment


a)


b)

University of Kent,

c)



The ins and outs of marginal employment

The vast majority of exclusive mini-jobbers churn betweennon-participation and marginal employment.

ME = stepping stone to contributing employment


1999 2002 2005 2008 2011 20140

20

40

60

80

100

120

Th

ou

san

ds

from FT

from PT

from Unemployment


1999 2002 2005 2008 2011 20140

20

40

60

80

100

120

Th

ou

san

ds

to FT

to PT

to Unemployment

to Nonparticipation

1999 2002 2005 2008 2011 2014−25

−20

−15

−10

−5

0

5

10

15

20

25

Th

ou

san

ds

FT

PT

Unemployment

Nonparticipation


a)


b)

University of Kent,

c)



The ins and outs of contributing part-time employment

Main net contributors are non-participants and mini-jobbers

Net outflow to unemployment


1999 2002 2005 2008 2011 20140

20

40

60

80

100

120

Th

ou

san

ds

from FT

from ME

from Unemployment


1999 2002 2005 2008 2011 20140

20

40

60

80

100

120T

ho

usa

nd

s

to FT

to ME

to Unemployment

to Nonparticipation

1999 2002 2005 2008 2011 2014−15

0

15

30

45

60

Th

ou

san

ds

FT

ME

Unemployment

Nonparticipation


a)


b)

University of Kent,

c)



The ins and outs of contributing full-time employment

Unemployment and non-participation are by far the main gross flows

Unemployment is the main engine behind the decrease in full-timeemployment


1999 2002 2005 2008 2011 20140

50

100

150

200

250

300

Th

ou

san

ds

from PT

from ME

from Unemployment


1999 2002 2005 2008 2011 20140

50

100

150

200

250

300

Th

ou

san

ds

to PT

to ME

to Unemployment

to Nonparticipation

1999 2002 2005 2008 2011 2014−60

−45

−30

−15

0

15

30

Th

ou

san

ds

PT

ME

Unemployment

Nonparticipation


a)


b)

University of Kent,

c)



How well do flows determine the evolution of the stocks?

1999 2002 2005 2008 2011 20140.45

0.5

0.55

0.6

0.65

1999 2002 2005 2008 2011 20140.1

0.15

0.2

0.25

0.3

1999 2002 2005 2008 2011 20140

0.05

0.1

0.15

1999 2002 2005 2008 2011 20140

0.05

0.1

0.15

1999 2002 2005 2008 2011 20140.05

0.1

0.15

0.2

FT

FT (stocks)

PT

PT (stocks)

ME

ME (stocks)

Unemployment

Unempl. (stocks)

Nonparticipation

Nonpart. (stocks)

Compare actual stocks toequilibrium stockscalculated from transitionprobabilities (i.e. take theflows for each year andcalculate the limit stocks)

The fit is good because netflows are small compared togross flows.


a)


b)

University of Kent,

c)


THE EXPANSION OF MARGINALEMPLOYMENT

The expansion of marginal employment

The rise in the stock of mini-jobs

The strong increase in the overall stock of mini-jobs occurred afterHartz II, increasing from 1.98 million in 2002 to 3.14 million in 2004.By 2014 there were about 3.54 million mini-job contracts in Germany,but only about 2 million workers had a mini-job as primaryemployment.

Primary jobs All contracts

1999 2002 2005 2008 2011 20140.65

0.7

0.75

0.8

0.05

0.1

0.15

0.2

0.25

Full−time (left)Part−time (right)

Marginal (right)

1999 2002 2005 2008 2011 2014

0.65

0.7

0.75

0.05

0.1

0.15

0.2

0.25

Full−time (left)Part−time (right)

Marginal (right)


a)


b)

University of Kent,

c)



Moonlighting

The proportion of workers moonlighting increased from 2.3% in 2002to 7.2% in 2014, or from 538,000 workers in 2002 to 1.7 millionworkers in 2014.By 2014, 1.57 million workers were moonlighting with a mini-job. Byfar the most common situation.

Share with 1 or 2 jobs Concurrent employment

1999 2002 2005 2008 2011 20140.9

0.925

0.95

0.975

1

0

0.025

0.05

0.075

0.1

1 Job (left) 2 Jobs (right)

1999 2002 2005 2008 2011 20140

1

2

3

4

5

6

7

% o

f T

ota

l Em

plo

yme

nt

(FT+PT) and (PT+PT)

(FT+ME) and (PT+ME)

ME+ME


a)


b)

University of Kent,

c)



The ins and outs or moonlighting with a mini-job

Moonlighting with a mini-job massively starts after 2003, consistentlywith the tax incentives introduced by Hartz II.

It is increasing because mini-jobbers add up a contributing job.


1999 2002 2005 2008 2011 20140

10

20

30

40

50

60

70

80

Th

ou

san

ds

from CE

from CE+PT

from ME+2ME

from Unemployment


1999 2002 2005 2008 2011 20140

10

20

30

40

50

60

70

80T

ho

usa

nd

s

to CE

to CE+ME

to ME+2ME

to Unemployment

to Nonparticipation

1999 2002 2005 2008 2011 2014−10

0

10

20

30

40

Th

ou

san

ds

CE

CE+PT

CE+ME

ME+2ME

Nonparticipation


a)


b)

University of Kent,

c)



Worker/job characteristics

Female in part-time work & marginal employmentMore PT and ME in servicesExclusive ME is unskilled, in smaller establishments, pays lower wagesMoonlighting workers share the characteristics of contributingemployees, and have their primary job in large establishments

Establishment char. (primary employer)Women Age Unskilled Foreign Poor HH Establishment size Gross mean % in

mean median daily wage of service sector(%) (years) (%) (%) (%) FT-employee

(1) Full-time employment 33.9 40.0 8.0 7.0 5.94 104.4 34 91.4 65.4(2) Part-time employment 87.5 41.7 9.7 6.4 5.42 182.5 52 95.1 85.4(3) Unemployment 44.1 39.7 23.4 15.2 42.59 - - - -(4) Non participation 69.6 39.2 21.4 16.7 17.86 - - - -(5) Total marginal empl. 74.4 40.1 18.7 11.1 7.99 - - - -Exclusive mini-jobbers

(5.1) ME 83.5 49.9 22.5 10.6 9.14 98.8 19 74.9 81.6(5.2) ME + ME 88.7 40.3 24.1 11.1 12.52 277.8 29 77.3 84.7

Moonlighting with a mini-job

(5.3) Full-time + ME 39.7 39.7 10.6 12.1 4.88 306.9 70 91.0 63.8(5.4) Part-time + ME 89.1 42.0 12.9 11.7 7.72 377.4 81 90.5 87.4


a)


b)

University of Kent,

c)



The role of Hartz 1&2 in rising ME

Proportion of ME in establishment

Hartz 1&2 2.5679 6.6345(0.0285) (0.0669)

Hartz 3 1.4855 1.5064(0.0200) (0.0200)

Hartz 4 0.2111 0.2218(0.0191) (0.0191)

average wage 0.0140 0.0526(0.0007) (0.0010)

average wage * Hartz 1&2 -0.0457(0.0006)

establishment size: [10, 50) 3.5593 3.5375(0.0472) (0.0471)

establishment size: [50, 250) 5.2367 5.1752(0.0631) (0.0629)

establishment size: > 250 6.4273 6.3175(0.0977) (0.0973)

location dummies (federal land) yes yesindustry dummies (2-digit) yes yesNumber of observations 877,125 877,125

Strong e↵ect of Hartz 1&2

Particularly when interactedwith low productivity


a)


b)

University of Kent,

c)



Job duration

Mini-jobs last 1 year on average

At most 3 years for exclusive ME and 2 years for concurrent ME

Num Obs. Mean 10% 25% 50% 75% 90%

Never moonlightedFull-time 16626 35.9 9 12 24 48 84

Part-time 6551 23.7 5 10.5 14.5 24 49

Mini-job 2637 14.2 3 6 12 20 36

Moonlighted at least onceExclusive full-time spells 1106 32 7 12 21 40 72

Exclusive part-time spells 943 24.6 5.3 10 16.5 26 54

Exclusive mini-job spells 437 15.5 3 5 11 20.3 35

Concurrent mini-job spell when in FT 732 12.2 2 5 11.8 14 24

Concurrent mini-job spell when in PT 609 12.5 2 5 11.7 14 24

Notes: Source: GSOEP.


a)


b)

University of Kent,

c)



Hours

Clear ranking

PT pushed up a bit

Full-time Part-time Mini-jobs

2000 2002 2004 2006 2008 2010 2012 20140

10

20

30

40

50

60

We

ekl

y h

ou

rs

Mean

P90

P50

P10

2000 2002 2004 2006 2008 2010 2012 20140

10

20

30

40

50

60

We

ekl

y h

ou

rsMean

P90

P50

P10

2000 2002 2004 2006 2008 2010 2012 20140

10

20

30

40

50

60

We

ekl

y h

ou

rs

Mean

P90

P50

P10


a)


b)

University of Kent,

c)



Hourly wages

Downward trend until 2008

More pronounced for PT and mini-jobs

2000 2002 2004 2006 2008 2010 2012 20140

5

10

15

20

25

30

35

40

Hourly

wages

Full-time

MeanP90P50P10

2000 2002 2004 2006 2008 2010 2012 20140

5

10

15

20

25

30

35

40

Hourly

wages

Part-time

MeanP90P50P10

2000 2002 2004 2006 2008 2010 2012 20140

5

10

15

20

25

30

35

40

Hourly

wages

Mini-jobs

MeanP90P50P10


a)


b)

University of Kent,

c)



Earnings inequality

Strong increase of earnings inequality at the bottom parallel to the rise ofPT & ME

Primary earnings Total earnings

1999 2002 2005 2008 2011 20141

2

3

4

5

6

7

8

9

10

11

P50/P10

P85/P50

P85/P10

1999 2002 2005 2008 2011 20141

2

3

4

5

6

7

8

9

10

11

P50/P10

P85/P50

P85/P10


a)


b)

University of Kent,

c)



Redistribution

Redistribution does not curb the upward trend of lower household incomeinequality

Gross After tax and subsidy

1999 2002 2005 2008 2011 20141.5

2

2.5

3

3.5

4

4.5

5

5.5

P50/P10

P90/P50

P90/P10

1999 2002 2005 2008 2011 20141.5

2

2.5

3

3.5

4

4.5

5

5.5

P50/P10

P90/P50

P90/P10


a)


b)

University of Kent,

c)



The moonlighting decision

OLS FE FE+IV (1) FE+IV (2)

log-wage 0.0047 0.0132 0.0060 -0.0410(0.0004) (0.0006) (0.0062) (0.0064)

age -0.0001 0.0022 0.0019 0.0023(2.8e-05) (4.9e-05) (0.0001) (0.0001)

education: low 0.0093 -0.0167 -0.0175 -0.0528(0.0012) (0.0026) (0.0057) (0.0060)

education: medium 0.0146 0.0015 0.0017 -0.0177(0.0007) (0.0020) (0.0035) (0.0038)

complexity level: skilled task -0.0042 0.0016 0.0003 0.0046(0.0012) (0.0014) (0.0019) (0.0022)

complexity level: complex task -0.0108 -0.0035 -0.0035 0.0029(0.0014) (0.0017) (0.0023) (0.0025)

complexity level: highly complex task -0.0161 -0.0034 -0.0033 0.0033(0.0014) (0.0017) (0.0024) (0.0026)

foreign 0.0253 -0.0159 -0.0253 -0.0324(0.0014) (0.0026) (0.0038) (0.0043)

establishment size: [10, 50) -0.0014 0.0012 0.0044 -(0.0009) (0.0011) (0.0038) -

establishment size: [50, 250) -0.0048 0.0038 0.0048 -(0.0010) (0.0012) (0.0040) -

establishment size: > 250 -0.0084 0.0036 0.0048 0.0004(0.0010) (0.0014) (0.0041) (0.0009)

Number of “individual” x “time” obs. 3,029,319 3,029,319 1,974,070Number of individuals 368,185 275,602Additional controls: location, industry, occupation, time dummies

FE+IV (1): Wage instrument =

mean log wage of other

employees at the worker’s

establishment

FE+IV (2): firm size > 120 and

Wage instrument = mean log

wage of full-time employees at

the worker’s establishment

For the workers in larger firms(most moonlighters) thereseems to be evidence that thedecision to moonlight followsa wage cut.


a)


b)

University of Kent,

c)



Topping up wages - Average

Secondary wage helps close the di↵erence in wages between those whomoonlight and those who don’t

Primary job full-time Primary job part-time

1999 2002 2005 2008 2011 201470

80

90

100

110

Gro

ss r

eal d

aily

wage (

Euro

)

FT (exclusive)

FT (concurrent: primary)

FT+ME (concurrent: total)

1999 2002 2005 2008 2011 201430

40

50

60

70

Gro

ss r

eal d

aily

wage (

Euro

)

PT (exclusive)

PT (concurrent: primary)

PT+ME (concurrent: total)


a)


b)

University of Kent,

c)



Topping up wages - Conditional

Moonlighting does increase total earnings.

Full-time Part-timeOLS FE OLS FE

moonlighting 0.0068 0.0442 0.1070 0.1384(0.0025) (0.0018) (0.0044) (0.0153)

age 0.0063 0.0079 0.0075 0.0153(0.0001) (6.4e-05) (0.0002) (0.0002)

education: low -0.2825 -0.1489 -0.2217 -0.2056(0.0028) (0.0049) (0.0073) (0.0155)

education: medium -0.1743 -0.0949 -0.1677 -0.1388(0.0018) (0.0033) (0.0053) (0.0120)

complexity level: skilled task 0.1768 0.0431 0.1730 0.0423(0.0028) (0.0020) (0.0053) (0.0050)

complexity level: complex task 0.3582 0.0875 0.2693 0.0590(0.0033) (0.0023) (0.0077) (0.0072)

complexity level: highly complex task 0.4000 0.0892 0.3489 0.0907(0.0034) (0.0025) (0.0077) (0.0078)

foreign -0.0348 -0.0026 0.0142 0.0219(0.0023) (0.0030) (0.0063) (0.0085)

establishment size: [10, 50) 0.1984 0.0640 0.2258 0.0579(0.0027) (0.0019) (0.0074) (0.0057)

establishment size: [50, 250) 0.2980 0.1048 0.3097 0.0845(0.0027) (0.0022) (0.0074) (0.0070)

establishment size: > 250 0.4009 0.1410 0.3763 0.1074(0.0027) (0.0024) (0.0074) (0.0078)

Number of “individual” x “time” obs. 2,318,491 2,318,491 541,987 541,987Number of individuals 302,327 103,001


a)


b)

University of Kent,

c)


CONCLUSION

Conclusion

Conclusion

We try to present some evidence that the Hartz reforms had animpact on the economy.

By forcing more unemployed into non-participation, they madenon-employed workers more willing to accept part-time jobs, manylow-paid.

There is also evidence that the incentives to top up a mini-job werewelcome in the context of wage moderation.


a)


b)

University of Kent,

c)


Documents

Work-Sharing and the Fall of Unemployment in Germany