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Employment And Deadweight Loss Effects Of Observed Nonwage Labor Costs

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  • GIOVANNA AGUILAR
  • SíLVIO RENDON

Abstract

"To assess the employment effects of labor costs, it is crucial to have reliable estimates of the labor cost elasticity of labor demand. Using a matched firm-worker data set, we estimate a long-run unconditional labor demand function, exploiting information on workers to correct for endogeneity in the determination of wages. We evaluate the employment and deadweight loss effects of observed employers' contributions imposed by labor laws (health insurance, training, and taxes) as well as of observed workers' deductions (social security and income tax). We find that nonwage labor costs reduce employment by 17% for white collars and by 53% for blue collars, with associated deadweight losses of 10% and 35% of total contributions, respectively. Since most firms undercomply with mandated employers' and workers' contributions, we find that full compliance would imply employment losses of 4% for white collars and 12% for blue collars, with respective associated deadweight losses of 2% and 6%." ("JEL" J23, J32) Copyright (c) 2009 Western Economic Association International.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 48 (2010)
Issue (Month): 3 (07)
Pages: 793-809

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Handle: RePEc:bla:ecinqu:v:48:y:2010:i:3:p:793-809

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  1. Carmen Pagés-Serra, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  2. Bentolila, Samuel & Bertola, Giuseppe, 1990. "Firing Costs and Labour Demand: How Bad Is Eurosclerosis?," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 381-402, July.
  3. Carmen Pagés-Serra & James J. Heckman, 2000. "The Cost of Job Security Regulation: Evidence from Latin American Labor Markets," Research Department Publications 4227, Inter-American Development Bank, Research Department.
  4. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, vol. 79(4), pages 674-89, September.
  5. Auerbach, Alan J. & Hines, James Jr., 2002. "Taxation and economic efficiency," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 21, pages 1347-1421 Elsevier.
  6. Clark, Kim B & Freeman, Richard B, 1980. "How Elastic is the Demand for Labor?," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 509-20, November.
  7. Jaime Saavedra-Chanduví & Máximo Torero, 2000. "Labor Market Reforms and Their Impact on Formal Labor Demand and Job Market Turnover: The Case of Peru," Research Department Publications 3095, Inter-American Development Bank, Research Department.
  8. Silvio Rendon, 2006. "Job Creation and Investment in Imperfect Capital and Labor Markets," Computing in Economics and Finance 2006 432, Society for Computational Economics.
  9. Nickell, S.J., 1987. "Dynamic models of labour demand," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 9, pages 473-522 Elsevier.
  10. Daniel S. Hamermesh, 1987. "The Demand for Labor in the Long Run," NBER Working Papers 1297, National Bureau of Economic Research, Inc.
  11. Richard B. Freeman, 2000. "Single Peaked Vs. Diversified Capitalism: The Relation Between Economic Institutions and Outcomes," NBER Working Papers 7556, National Bureau of Economic Research, Inc.
  12. Carmen Pagés-Serra & Gustavo Márquez, 1998. "Ties That Bind: Employment Protection and Labor Market Outcomes in Latin America," Research Department Publications 4118, Inter-American Development Bank, Research Department.
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Cited by:
  1. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2014. "The own-wage elasticity of labor demand: A meta-regression analysis," ZEW Discussion Papers 14-016, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Aguilar, Giovanna & Rendon, Si­lvio, 2008. "Matching bias in labor demand estimation," Economics Letters, Elsevier, vol. 100(2), pages 297-299, August.
  3. Christian Westermeier & Anika Rasner & Markus M. Grabka, 2012. "The Prospects of the Baby Boomers: Methodological Challenges in Projecting the Lives of an Aging Cohort," SOEPpapers on Multidisciplinary Panel Data Research 440, DIW Berlin, The German Socio-Economic Panel (SOEP).

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