Service cheques in Europe - a model for Germany? Employment effects and macro-economic costs: five scenarios

In the mid-nineties, near all european governments look almost desperately for a panacea against sluggish growth and high unemployment. Since this problem concerns mainly low-skilled workers, the creation of low-profile jobs in the personal service sector still seems to be one of the most promising solutions. After a long period of scepticism dominating economic thinking about the growth potential of this sector, a renaissance of the service-idea is taking place at the moment. The so called service cheque finds itself at the centre of this new policy approach. Its objective is twofold: to subsidize demand and to reduce the cost of labour. After France and Belgium, Germany is the third country introducing it at a large scale. The findings of this essay back up the opinion that direct welfare benefits, promoting the use of service-cheques, are preferable to those that rely on tax-relief incentives. On the other hand, the idea to provide households with a special welfare benefit in terms of service-cheques could prove risky once the system's high elasticity of output provokes uncontrollable budget deficits. Alternative models should therefore also be considered.