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Labor Market Institutions and the Employment-Productivity Trade-Off: A Wage Posting Approach

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Author Info

  • Chéron, Arnaud

    ()
    (University of Le Mans)

  • Hairault, Jean-Olivier

    ()
    (University of Paris 1 Panthéon-Sorbonne)

  • Langot, François

    ()
    (University of Le Mans)

Abstract

This paper analyzes the implications of labor market institutions and policies on the employment-labor productivity trade-off. We consider an equilibrium search model with wage posting and specific human capital investment where unemployment and the distribution of both wages and productivity are endogenous. By means of simulations of this model estimated on French data, we show that the minimum wage allows a high production level to be reached by inducing increased training investment, even if its optimal level is weaker. Considering the payroll tax subsidies implemented to lower the labor cost without removing the minimum wage legislation, we show that this policy has been welfare improving, and has been relatively well managed by spreading subsidies over a large range of wages, and not only at the minimum wage level.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1364.

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Length: 41 pages
Date of creation: Oct 2004
Date of revision:
Publication status: published as "A quantitative evaluation of payroll tax subsidies for low-wage workers: An equilibrium search approach" in: Journal of Public Economics, 2008, 92(3-4), 817-843
Handle: RePEc:iza:izadps:dp1364

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Keywords: labor costs; wage posting; productivity; employment;

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References

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  1. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
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  3. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-74, November.
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Cited by:
  1. Anna, BATYRA & Henri R., SNEESSENS, 2007. "Selective Reductions in Labour Taxation : Labour Market Adjustments and Macroeconomic Performance," Discussion Papers (ECON - Département des Sciences Economiques) 2007001, Université catholique de Louvain, Département des Sciences Economiques.

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