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Payroll Taxation, Unemployment and Skill Formation

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  • Bergstrom, P.
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    Abstract

    The issue of lowering or restructuring payroll taxes in order to relieve the situation for the unemployed, and in particular unskilled workers, is a topical question on the political agenda across the European countries. This paper examines the potential effects of altered payroll taxes on unemployment by using a general equilibrium model with wage bargaining and two groups of labor: skilled and unskilled. The results within the framework of the paper are not very encouraging, though. Differentiated or generally lowered payroll taxes cannot be expected to provide relief for the unemployed unskilled, or to have any major impact on overall unemployment. However, increasing the progressiveness of the payroll tax could induce positive effects through wage moderation. This policy is however likely to have adverse effects on skill formation, a problem which is addressed by modelling individuals' choices of education explicitly.

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    Bibliographic Info

    Paper provided by Uppsala - Working Paper Series in its series Papers with number 1997-16.

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    Length: 31 pages
    Date of creation: 1997
    Date of revision:
    Handle: RePEc:fth:uppaal:1997-16

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    Postal: UPPSALA UNIVERSITY, DEPARTMENT OF ECONOMICS, S-751 20 UPPSALA SWEDEN.
    Phone: + 46 18 471 25 00
    Fax: + 46 18 471 14 78
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    Web page: http://www.nek.uu.se/
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    Related research

    Keywords: TAXATION ; HUMAN CAPITAL ; TRADE UNIONS;

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