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The Wedge

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  • Laszlo Goerke

Abstract

It is often argued that the quantity that is traded on the market is independent of the side of the market which is taxed. However, this assertion need not hold, especially in imperfectly competitive markets such as that for labour. Taking an efficiency wage economy as an example, it is shown that the legal incidence of social security contributions will affect the economic incidence if unemployment compensation is subject to social security contributions. Since this is the case in numerous OECD countries, the wedge between producer costs and the net wage might be an inappropriate device for measuring the impact of social security contributions on wages and employment.

Suggested Citation

  • Laszlo Goerke, 2000. "The Wedge," Manchester School, University of Manchester, vol. 68(5), pages 608-623, September.
    • Handle: RePEc:bla:manchs:v:68:y:2000:i:5:p:608-623
    DOI: 10.1111/1467-9957.00221
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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