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Should we tax overtime, subsidize the wage or subsidize employment?

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  • Victoria Osuna

    () (Department of Economics, Universidad Pablo de Olavide)

Abstract

This paper compares the macroeconomic implications of taxing overtime and using two kinds of subsidies, an employment and a wage subsidy, in a model where team work and commuting costs subject to congestion are key determinants of the choice of the workweek. To obtain reliable estimates, I calibrate the model to the substitutability between the workweek and employment using business cycle information. I find that subsidizing employment can achieve the same employment increase than taxing overtime but at a lower cost in terms of output, productivity, wages and welfare. The wage subsidy that achieves the same employment increase turns out to be very costly from a fiscal point of view, 12.7% of output versus 4.57% of output in the employment subsidy experiment.

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File URL: http://www.upo.es/serv/bib/wps/econ0903.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Universidad Pablo de Olavide, Department of Economics in its series Working Papers with number 09.03.

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Length: 29 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:pab:wpaper:09.03

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Related research

Keywords: Overtime taxation; Subsidies; Workweek; Team Work; Commuting costs.;

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References

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  1. Orszag, J. Michael & Snower, Dennis J., 2003. "Designing employment subsidies," Labour Economics, Elsevier, vol. 10(5), pages 557-572, October.
  2. Hansen, Gary D., 1985. "Indivisible labor and the business cycle," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 309-327, November.
  3. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 1993. "Labor Hoarding and the Business Cycle," NBER Working Papers 3556, National Bureau of Economic Research, Inc.
  4. Gabriele Cardullo & Bruno Van der Linden, 2007. "Employment Subsidies and Substitutable Skills: An Equilibrium Matching Approach," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 53(4), pages 375-404.
  5. Mark Bils & Jang-Ok Cho, 1993. "Cyclical factor utilization," Discussion Paper / Institute for Empirical Macroeconomics 79, Federal Reserve Bank of Minneapolis.
  6. Cho, J-O. & Cooley, T.F., 1988. "Employment And Hours Over The Business Cycle," Papers 88-03, Rochester, Business - General.
  7. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Employment and Distributional Effects of Restricting Working Time," CEPR Discussion Papers 2127, C.E.P.R. Discussion Papers.
  8. Victoria Osuna Padilla & José-Víctor Ríos-Rull, 2002. "Implementing the 35 Hour Workweek by Means of Overtime Taxation," Economic Working Papers at Centro de Estudios Andaluces E2002/04, Centro de Estudios Andaluces.
  9. Cho, Jang-Ok & Rogerson, Richard, 1988. "Family labor supply and aggregate fluctuations," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 233-245.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How to increase employment, and at what cost
    by Economic Logician in Economic Logic on 2009-02-26 09:03:00

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