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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 (CEPREMAP and GAINS, University of Le Mans)
Hairault, Jean-Oliver () (CEPREMAP, EUREQua, University of Paris 1, IUF and IZA Bonn)
Langot, François (CEPREMAP and GAINS, University of Le Mans)

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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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Publisher 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:
Handle: RePEc:iza:izadps:dp1364

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

Other versions of this item:

Find related papers by JEL classification:
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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References listed on IDEAS
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    Other versions:
  2. Pischke, J-S, 1996. "Continuous Training in Germany," Working papers 96-28, Massachusetts Institute of Technology (MIT), Department of Economics.
    Other versions:
  3. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, Econometric Society, vol. 70(6), pages 2295-2350, November. [Downloadable!] (restricted)
    Other versions:
  4. Smith, A A, Jr, 1993. "Estimating Nonlinear Time-Series Models Using Simulated Vector Autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S63-84, Suppl. De. [Downloadable!] (restricted)
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  6. Rosholm, Michael & Svarer, Michael, 2000. "Wages, Training and Job Turnover in a Search-Matching Model," IZA Discussion Papers 223, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  7. Gallant, A. Ronald & Tauchen, George, 1996. "Which Moments to Match?," Econometric Theory, Cambridge University Press, vol. 12(04), pages 657-681, October. [Downloadable!]
  8. Gourieroux, C & Monfort, A & Renault, E, 1993. "Indirect Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(S), pages S85-118, Suppl. De. [Downloadable!] (restricted)
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  9. Jean-Marc Robin & Sébastien Roux, 2002. "An Equilibrium Model of the Labor Market with Endogenous Capital and Two-Sided Search," Annales d'Economie et de Statistique, ADRES, issue 67-68, pages 10, Juillet-D. [Downloadable!]
  10. Daniel Cohen & Arnaud Lefranc & Gilles Saint-Paul, 1997. "French unemployment: a transatlantic perspective," Economic Policy, CEPR, CES, MSH, vol. 12(25), pages 265-292, October. [Downloadable!] (restricted)
  11. Albrecht, James & Vroman, Susan, 2001. "Equilibrium Search with Time-Varying Unemployment Benefits," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  12. David G. Blanchflower & Lisa M. Lynch, 1992. "Training at Work: A Comparison of U.S. and British Youths," NBER Working Papers 4037, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Orazio P. Attanasio & James Banks & Costas Meghir & Guglielmo Weber, 1995. "Humps and Bumps in Lifetime Consumption," NBER Working Papers 5350, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  14. Abowd, John M. & Kramarz, Francis, 2003. "The costs of hiring and separations," Labour Economics, Elsevier, vol. 10(5), pages 499-530, October. [Downloadable!] (restricted)
    Other versions:
  15. Black, Sandra E & Lynch, Lisa M, 1996. "Human-Capital Investments and Productivity," American Economic Review, American Economic Association, vol. 86(2), pages 263-67, May. [Downloadable!] (restricted)
  16. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March. [Downloadable!] (restricted)
    Other versions:
  17. Kramarz, Francis & Philippon, Thomas, 2000. "The Impact of Differential Payroll Tax Subsidies on Minimum Wage Employment," IZA Discussion Papers 219, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  18. repec:cup:etheor:v:12:y:1996:i:4:p:657-81 is not listed on IDEAS
  19. Tauchen, George E. & Gallant, A. Ronald, 1995. "Which Moments to Match," Working Papers 95-20, Duke University, Department of Economics.
  20. 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.
  21. Manning, Alan, 2004. "Monopsony and the efficiency of labour market interventions," Labour Economics, Elsevier, vol. 11(2), pages 145-163, April. [Downloadable!] (restricted)
    Other versions:
  22. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
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