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The Stove Premium

Free Exchange thinks German women should work harder outside the home:

Another interesting aspect of the German economy, and one of its major weaknesses, is often overlooked (though not by Matthew Yglesias)—low participation of (married) women and mothers in the (paid) labour force. There are two economic reasons for this shortfall: taxes and child care.

Germany raises almost 65% of revenues (including social security contributions) through taxes on labour, according to the report, compared to 52% in other OECD countries. The OECD suggests that high taxes on labour might even hinder immigration among highly skilled workers. Henrik Kleven, Camille Landais and Emmanuel Saez recently confirmed this dynamic, in different contexts, in two very interesting papers.

On top of high tax rates, married couples are taxed jointly. In essence, this means that the secondary earner, which is more often than not the wife, faces higher tax rates and has no (additional) personal tax allowance. What’s more, a non-working spouse is covered by the other’s public health insurance in Germany, providing a further disincentive to full-time employment. With the centre-right CDU party in government, however, it is politically very difficult to remove or at least lower these disincentives.

Regarding children, Germany is not stingy. It spends more than the OECD average on policies supporting children, according to a 2009 study. But most of it is spent on direct financial support to parents, and not on child care to enable parents to work full-time. Generous support also hasn’t prevented Germany from having an embarrassingly high child poverty rate (which is nonetheless much lower than America's).

...[I]ncreased efforts to provide easier access to affordable child care have prompted some conservative politicians to demand what the press has termed a “cooker premium”: to pay mothers (or fathers) a compensation if they are not using public child care, but would rather stay at home. This premium, which works as a disincentive or an implicit tax on labour, is scheduled to come into force in 2013 as well (though within the governing coalition there is still plenty of argument the rule).

Hmm, I'd call it the 'stove premium', but that may be an Americanism. To be fair, Free Exchange limits itself to 'economic' reasons for German womens' relatively low labor participation rate. But let's not forget cultural factors: plenty of German women believe that it's a good thing to spend lots of time with their children, and are willing to sacrifice career advancement and extra earnings to do that. What if they're right?

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