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Getting a lot out of a little bit of work? The effects of marginal employment during unemployment

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Abstract

Unemployed workers in Austria are allowed to top up unemployment benefits with a certain amount of earnings from employment without any benefit reduction. We do not find evidence that entering such “marginal employment” during unemployment acts as a stepping stone to regular employment. On the contrary, it tends to prolong the unemployment spell and hence reduces the time spent in regular employment within a 3-year period. Moreover, marginal employment during the unemployment spell leads to lower earnings. It inhibits the return to regular employment probably due to a high implicit tax rate on additional income.

Zusammenfassung

Arbeitslose haben in Österreich die Möglichkeit, ihre Arbeitslosengeldleistungen ohne Anspruchsminderung bis zu einer bestimmten Geringfügigkeitsgrenze mit einem Erwerbseinkommen aufzustocken. Wir finden keine Evidenz dafür, dass die Aufnahme einer solchen geringfügigen Beschäftigung während der Arbeitslosigkeit als Brücke in eine reguläre Beschäftigung fungiert. Sie verlängert im Gegenteil die Arbeitslosigkeit und reduziert infolgedessen die in einem Dreijahreszeitraum in regulärer Beschäftigung verbrachte Zeit. Darüber hinaus zieht sie niedrigere Erwerbseinkünfte nach sich. Offensichtlich hemmt die geringfügige Beschäftigung die Rückkkehr in reguläre Beschäftigung aufgrund einer hohen impliziten Besteuerung zusätzlicher Einkommen.

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Fig. 1

Sources: ASSD and PES data

Fig. 2

Sources: ASSD and PES data

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Notes

  1. See, e.g., Caliendo et al. (2013), Card et al. (2007), Lalive et al. (2006), Lalive (2007, 2008), Schmieder et al. (2012), Uusitalo and Verho (2010), Van Ours and Vodopivec (2006, 2008), Winter-Ebmer (2003), as well as Ehrenberg and Oaxaca (1976), Nekoei (2014) with respect to effects of maximum unemployment benefit duration on post-unemployment earnings.

  2. See, e.g., Abbring et al. (2005), Arni et al. (2013), Boockmann et al. (2014a, b), Boone et al. (2009), Hofmann (2012), Lalive et al. (2005), Svarer (2011), Van den Berg et al. (2004), Van der Klaauw and van Ours (2013) and Van den Berg and Vikström (2014).

  3. See, e.g., Hainmueller et al. (2016), Hofmann et al. (2012), Koning (2009), Pedersen et al. (2012), Van den Berg and Van der Klaauw (2006) and Van den Berg et al. (2012).

  4. See, e.g., Addison and Portugal (2002), Fougère et al. (2009), Gregg and Wadsworth (1996), Holzer (1988), Osberg (1993), Thomsen and Wittich (2010), Weber and Mahringer (2008) and Wielgosz and Carpenter (1987).

  5. See Behncke et al. (2010a, b) and Boockmann et al. (2014a, b).

  6. See, e.g., Graversen and van Ours (2008), Behaghel et al. (2012), Kastoryano and van der Klaauw (2011) and Wunsch (2013).

  7. As noted by the National Foundation for Unemployment Compensation & Workers’ Compensation (2013), “[i]n most US-States, a worker is partially unemployed during a week of less than full-time work if earnings from the regular employer (or odd-job earnings) are less than the weekly benefit amount. In some states, a claimant is partially employed during a week of less than full-time work when less than the weekly benefit amount, plus an allowance, is earned from odd-jobs or any other source”.

  8. Several studies analyse the effects of partial unemployment schemes in the US (see, e.g., Holen and Horowitz 1974; McCall 1996; McCall 1997; Munts 1970; O'Leary 1997).

  9. In Germany, unemployment benefit recipients are allowed to work for less than 15 h without losing entitlement to unemployment benefits. They can earn a maximum of € 165 per month from ME (also known as “mini-job”). Earnings above this threshold are fully withdrawn. As in Austria, ME is exempted from social security contributions on part of the employee, and employers pay an overall reduced rate of social security contributions (see Caliendo et al. 2016).

  10. Some other studies examined the employment effects of receiving partial unemployment benefits on top of a wage income—an option that is somewhat similar to ME with full benefit receipt. Kyyrä (2010), for instance, provided evidence for Finland whereby partial unemployment associated with short spells of full-time work facilitates transition to regular employment. His results further indicate that for men, unlike for women, part-time work coupled with partial benefits may speed up the process of finding a regular job. Kyyrä et al. (2013) found heterogeneous effects of partial unemployment benefits for different subgroups in Denmark. While for some (e.g., married women) the resulting net effect on unemployment duration is positive, it was found to be negative for others (e.g., young workers). Finally, a study by Fremigacci and Terracol (2013) revealed that a French programme that allows registered unemployed to combine earnings from part-time or short-term work with partial unemployment benefits (“activités réduites”) has both a significant lock-in effect and a significant positive post-treatment impact on the hazard rate to employment. Their simulations suggest that the two effects tend to cancel out and that the net impact of the programme is small.

  11. In order to achieve an optimal balance of covariates and examine the sensitivity of results with respect to different estimation methods, we test different matching algorithms. Full balance of the covariates is achieved not only with different variants of propensity score matching but also with kernel matching. The outcomes are very robust to the matching scheme used. Using propensity score matching and allowing for the use of more than one neighbour (oversampling) results in the best matching quality.

  12. The mean standardised bias suggested by Rosenbaum and Rubin (1985) is 0.4% after matching. T tests for equality of means in the treated and non-treated groups reveal no significant differences in any covariates remaining after matching. The pseudo-R2 after matching is 0.000.

  13. The observation period is limited to 3 years. In the case of right-censored data, the duration of unemployment or the time elapsed until the take-up of employment is set at 3 years (1095 days).

  14. According to the Mikrozensus Labour Force Survey (defining part-time, following the livelihood concept, by up to 35 h normally worked per week), during the period 2008–2010 only between 4.3 and 5.0% of men were employed part-time, against between 36.9 and 39.1% of women.

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Acknowledgements

We are grateful to Georg Böhs and Christoph Lorenz for very valuable research assistance.

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Authors and Affiliations

  1. Austrian Institute of Economic Research (WIFO), Arsenal Object 20, 1030, Vienna, Austria

    Rainer Eppel & Helmut Mahringer

  2. Kiel Institute for the World Economy (IfW), Kiel, Germany

    Rainer Eppel

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  1. Rainer Eppel
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Correspondence to Rainer Eppel.

Appendix

Appendix

See Tables 4 and 5.

Table 4 Logit estimates of the propensity scores
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Table 5 Summary statistics on outcomes
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Eppel, R., Mahringer, H. Getting a lot out of a little bit of work? The effects of marginal employment during unemployment. Empirica 46, 381–408 (2019). https://doi.org/10.1007/s10663-018-9402-1

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