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Complementarity Between Low- and High-Skilled Workers and the Employment Impact of Tax versus Human Capital Policies

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  • Clément Carbonnier

Abstract

The present paper analyses theoretically the impact of substitutability and complementarity between labour market segments on the efficiency of policies tackling low-skilled unemployment. Based on a search and matching model with multiple segments interacting through the production function, it is shown that the efficiency of cost policies - decreasing payroll taxes on low-skill segments - increases with the segments' substitutability. Reducing the relative cost of low-skill labour - through tax wedge decrease - induces labour demand increase if low-skill labour is substitute to other production factors. The efficiency of productivity policies - upgrading workers from lower to higher-skill segments - increases with their complementarity. Enhancing human capital allows increasing production - constrained by the scarcity of high-skill labour - hence increases low-skill labour demand if factors are complements. Consequently, variations of the efficiency of both policies may derive from the technological change, modifying the complementarity between segments.

Suggested Citation

  • Clément Carbonnier, 2020. "Complementarity Between Low- and High-Skilled Workers and the Employment Impact of Tax versus Human Capital Policies," Annals of Economics and Statistics, GENES, issue 138, pages 49-76.
  • Handle: RePEc:adr:anecst:y:2020:i:138:p:49-76
    DOI: 10.15609/annaeconstat2009.138.0049
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    Cited by:

    1. Clément Carbonnier, 2023. "Welfare Economics and Neoliberalism: Interpreting the ideal type of perfect competition general equilibrium," SciencePo Working papers Main hal-04062786, HAL.

    More about this item

    Keywords

    Unemployment Policies; Labor Taxation; Workforce Skills;
    All these keywords.

    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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