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<p>Many countries subsidize low-income employments or small jobs. These subsidies and their phasing out can generate labor market frictions and distort incentives. The German <i>Minijob</i> program subsidizes low-income jobs. It generates a ‘Minijob trap’ with substantial bunching along the earnings distribution. Since 2003, the newly introduced <i>Midijob</i> subsidy aims to reduce the Minijob-induced notch in the net earnings distribution. Midijobs reduce payroll taxes for employments above the Minijob earnings ceiling. We investigate whether introducing Midijobs reduced the Minijob trap. We apply a regression discontinuity design using administrative data and a difference-in-differences estimation using survey data. While in both cases our results show a small positive overall effect of Midijobs on transitions out of Minijobs, they are effective only for a narrow treatment group.</p>

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Phasing out payroll tax subsidies

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2025年2月12日

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  • Anna Herget,
  • Regina T. Riphahn

摘要

Many countries subsidize low-income employments or small jobs. These subsidies and their phasing out can generate labor market frictions and distort incentives. The German Minijob program subsidizes low-income jobs. It generates a ‘Minijob trap’ with substantial bunching along the earnings distribution. Since 2003, the newly introduced Midijob subsidy aims to reduce the Minijob-induced notch in the net earnings distribution. Midijobs reduce payroll taxes for employments above the Minijob earnings ceiling. We investigate whether introducing Midijobs reduced the Minijob trap. We apply a regression discontinuity design using administrative data and a difference-in-differences estimation using survey data. While in both cases our results show a small positive overall effect of Midijobs on transitions out of Minijobs, they are effective only for a narrow treatment group.