The effect of labour taxes on labour demand: a comparison between Belgium and neighbouring countries
AbstractThis study examines the evolution of labour costs and taxes in Belgium and neighbouring countries. We try to clarify the common issues in the current debate concerning labour costs and labour demand in Belgium and neighbouring countries and investigate the influence of labour costs on employment by using macroeconomic OECD data. We conclude that the tax wedge in Belgium is one of the highest of all OECD countries. Labour costs in Belgium rose at a moderate tempo, but labour productivity evolved less favourably compared with neighbouring countries. Belgian unit labour costs, considered as an indicator of competitiveness, evolved unfavourably. By using a dynamic error correction model we find a statistically significant but limited negative relation between labour costs and employment. A decrease in labour costs of 10% results in an increase of employment of only 1.3%, which indicates a strongly inelastic labour demand. In contrast to studies based on microeconomic data, which find generally higher wage elasticities, on the basis of this study no decisive elements can be found to question the rationale of the current wage indexation mechanism.
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Bibliographic InfoPaper provided by Hogeschool-Universiteit Brussel, Faculteit Economie en Management in its series Working Papers with number 2011/25.
Length: 27 page
Date of creation: Sep 2011
Date of revision:
economic history; ECSC; European Integration; regional concentration;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-01 (All new papers)
- NEP-EEC-2012-02-01 (European Economics)
- NEP-HIS-2012-02-01 (Business, Economic & Financial History)
- NEP-LAB-2012-02-01 (Labour Economics)
- NEP-LMA-2012-02-01 (Labor Markets - Supply, Demand, & Wages)
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