Making Work Pay for the Elderly Unemployed - Evaluating Alternative Policy Reforms for Germany

We evaluate three policy reforms targeted at older unemployed people: (i) an hourly wage subsidy, (ii) an in-work credit, and (iii) an employment bonus in the form of subsidized social security contributions on low wages. The work-incentive, labor-supply, and welfare effects of these policy reforms are analyzed on the basis of a behavioral microsimulation model for Germany. We find that the simulated labor-supply effects of the three policy reforms would be rather similar and of moderate size. Our results also suggest that the hourly wage subsidy yields the highest welfare gains.