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The Supply of Labour

In: Incentives and Redistribution in the Welfare State

Author

Listed:
  • Jonas Agell

    (Uppsala University)

  • Peter Englund

    (Uppsala University)

  • Jan Södersten

    (Uppsala University)

Abstract

Between 1989 and 1991, the marginal tax rate was reduced by 14 per cent for an average industrial worker and by 22 per cent for a typical salaried employee. This meant that, in one fell swoop, tax wedges had returned to the levels which existed at the end of the 1960s. With such a substantial reform, it was not unreasonable to expect visible effects on labour supply, even in the short run. This was also the view expressed by the minister of finance in the 1990 bill, but as it turned out no positive short-term effects took place. Instead, the unemployment crisis arrived, and the number of hours worked decreased from the first year of the new tax system, to fall by a total of 9 per cent between 1990 and 1993. The question is whether we can still see any signs, in the middle of this severe crisis, that the tax reform has affected the supply of labour, even if such effects cannot be fully realized in the form of more hours worked until demand has picked up again.

Suggested Citation

  • Jonas Agell & Peter Englund & Jan Södersten, 1998. "The Supply of Labour," Palgrave Macmillan Books, in: Incentives and Redistribution in the Welfare State, chapter 5, pages 106-139, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-333-99485-6_5
    DOI: 10.1007/978-0-333-99485-6_5
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