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Labour Tax Reform, the Good Jobs and the Bad Jobs

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  • Henrik Jacobsen Kleven
  • Peter Birch Sørensen

Abstract

We analyse recent proposals to shift the tax burden away from low‐paid labour, assuming a dual labour market where the “good” high‐paying jobs are rationed. A shift in the tax burden from low‐paid to high‐paid workers has an ambiguous effect on the level of aggregate employment while the allocation of aggregate employment is further distorted. Even if the tax reform raises total employment, economic efficiency may be reduced because labour is reallocated from high‐productive to low‐productive jobs. We also find that opportunities for on‐the‐job search have important implications for the policy effects.

Suggested Citation

  • Henrik Jacobsen Kleven & Peter Birch Sørensen, 2004. "Labour Tax Reform, the Good Jobs and the Bad Jobs," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(1), pages 45-64, March.
    • Handle: RePEc:bla:scandj:v:106:y:2004:i:1:p:45-64
    DOI: 10.1111/j.0347-0520.2004.t01-1-00347.x
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    Cited by:

    1. Merkl, Christian & Snower, Dennis J., 2008. "Escaping the unemployment trap: The case of East Germany," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 542-556, December.
    2. Jörg Lingens & Klaus Wälde, 2009. "Pareto-Improving Unemployment Policies," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(2), pages 220-245, June.
    3. Batyra, Anna & Sneessens, Henri R., 2010. "Selective reductions in labor taxation: Labor market adjustments and macroeconomic performance," Journal of Policy Modeling, Elsevier, vol. 32(4), pages 531-543, July.
    4. Boeters, Stefan, 2011. "Optimal tax progressivity in unionised labour markets: What are the driving forces?," Economic Modelling, Elsevier, vol. 28(5), pages 2282-2295, September.
    5. repec:zbw:ifwkwp:1309 is not listed on IDEAS
    6. Jonathan R. W. Temple, 2005. "Growth and Wage Inequality in a Dual Economy," Bulletin of Economic Research, Wiley Blackwell, vol. 57(2), pages 145-169, April.

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