Taxes, Risk Aversion and Unemployment Insurance as Causes of Wage Rigidity
AbstractRecent empirical evidence has shown that nominal wages are more rigid among blue-collar (low income) workers than among white-collar (high income) workers. We show theoretically that employees in crisis-ridden firms will reject wage cut proposals that save jobs if risk aversion is great, replacement rates high and marginal taxes low. These factors for can explain why wage rigidity is less intense among high-income earners than among low-income earners. We argue, that with economic growth nominal wages should become more flexible, since marginal taxes increase, the marginal utility of income drops, normally, replacement rates fall.
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Bibliographic InfoPaper provided by Trade Union Institute for Economic Research in its series Working Paper Series with number 160.
Length: 16 pages
Date of creation: 25 May 2000
Date of revision:
Wage rigidity; Marginal taxes; Risk aversion; Unemployment;
Find related papers by JEL classification:
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-05-30 (All new papers)
- NEP-LAB-2000-05-30 (Labour Economics)
- NEP-PBE-2000-05-30 (Public Economics)
- NEP-PUB-2000-05-30 (Public Finance)
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