Minijobs as stepping stones to regular employment: overall trends and the role of Midijob reforms

Abstract

Minijobs are subsidized small jobs below a fixed earnings threshold. Since a reform in 2003, they are viewed as stepping stones to the first labor market. However, the Minijob subsidy generates a ‘Minijob trap’ that causes vast bunching at the Minijob earnings threshold. Therefore, Midijobs were designed to reduce this bunching and to eliminate the ‘Minijob trap’. Midijobs are employments that earn between the Minijob earnings threshold and the Midijob earnings threshold. In this range, Midijobs subsidize social insurance contributions on a sliding scale. This paper describes time trends in the propensity to leave Minijobs for regular employment and studies the role of Midijobs for transitions out of Minijobs. We find a strong increase in transitions from Minijobs to regular employment over time. However, there is no convincing evidence that Midijobs are connected to this development. Instead, behavioral changes and aggregate developments such as the business cycle and a booming labor market may have contributed to this development.