Employment and Deadweight Loss Effects of Observed Non-Wage Labor Costs
AbstractTo assess the employment effects of labor costs it is crucial to have reliable estimates of the labor cost elasticity of labor demand. Using a matched firm-worker dataset, we estimate a long run unconditional labor demand function, exploiting information on workers to correct for endogeneity in the determination of wages. We evaluate the employment and deadweight loss effects of observed employers’ contributions imposed by labor laws (health insurance, training, and taxes) as well as of observed workers’ deductions (social security, and income tax). We find that non-wage labor costs reduce employment by 17% for white-collars and by 53% for blue-collars, with associated deadweight losses of 10% and 35% of total contributions, respectively. Since most firms undercomply with mandated employers’ and workers contributions, we find that full compliance would imply employment losses of 4% for white-collars and 12% for blue-collars, with respective associated deadweight losses of 2% and 6%.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2856.
Length: 35 pages
Date of creation: Jun 2007
Date of revision:
Publication status: published in: Economic Inquiry, 2010, 48 (3), 793 - 809
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Other versions of this item:
- Giovanna Aguilar & Sílvio Rendon, 2010. "Employment And Deadweight Loss Effects Of Observed Nonwage Labor Costs," Economic Inquiry, Western Economic Association International, vol. 48(3), pages 793-809, 07.
- Giovanna Aguilar & Silvio Rendon, 2007. "Employment and deadweight loss effects of observed non-wage labor costs," Documentos de Trabajo 2007-259, Departamento de Economía - Pontificia Universidad Católica del Perú.
- Silvio Rendon & Giovanna Aguilar, 2007. "Employment and Deadweight Loss Effects of Observed Non-Wage Labor Costs," Working Papers 0704, Centro de Investigacion Economica, ITAM.
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
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