March 2006

IZA DP No. 2041: Evaluating the German "Mini-Job" Reform Using a True Natural Experiment

published in: Applied Economics, 2010, 42(19), 2475–2489

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.