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Tax Wedges, Unemployment Benefits and Labour Market Outcomes in the New EU Members

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Author Info
Alberto Behar () (University of Oxford, Department of Economics, Oxford, United Kingdom)

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Abstract

There has been a widely accepted belief that certain labor market institutions, including high taxation and generous benefits, can lead to low employment and/or high unemployment. To what extent do such priors about tax wedges and unemployment benefits apply to the new members of the EU? Principal Component Analysis (PCA) suggests the new members share similar characteristics to each other and should be grouped separately from the rest of Europe. There are statistically significant differences in the medians of unemployment benefits and the labor market outcomes of the less productive workers, but insignificant differences in primeage outcomes and tax wedges. Within the new members, our non-parametric analysis finds tax wedges and the duration of benefits (not the replacement ratio) are associated with poor labor market outcomes, but the evidence is weak.

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Article provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its journal AUCO Czech Economic Review.

Volume (Year): 3 (2009)
Issue (Month): 1 (March)
Pages: 069-092
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Handle: RePEc:fau:aucocz:au2009_069

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Related research
Keywords: Labour market institutions; principal component analysis;

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Find related papers by JEL classification:
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy
P27 - Economic Systems - - Socialist Systems and Transition Economies - - - Performance and Prospects

References listed on IDEAS
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  1. Nickell, Stephen & Layard, Richard, 1999. "Labor market institutions and economic performance," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084 Elsevier. [Downloadable!] (restricted)
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  2. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR, CES, MSH, vol. 15(30), pages 47-104, 04. [Downloadable!] (restricted)
    Other versions:
  3. Stephen Nickell, 2004. "Employment and Taxes," CEP Discussion Papers dp0634, Centre for Economic Performance, LSE. [Downloadable!]
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  4. Lindert, Peter & Allard, Gayle, 2006. "Euro-Productivity and Euro-Jobs since the 1960s: Which Institutions Really Mattered?," Working Papers 06-19, University of California at Davis, Department of Economics. [Downloadable!]
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  5. Bruno Amable & Lilas Demmou & Donatella Gatti, 2006. "Institutions, unemployment and inactivity in the OECD countries," PSE Working Papers 2006-16, PSE (Ecole normale supérieure). [Downloadable!]
  6. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Social, Employment and Migration Working Papers 35, OECD, Directorate for Employment, Labour and Social Affairs. [Downloadable!]
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  7. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01. [Downloadable!] (restricted)
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