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Wage effects of non-wage labour costs

Author

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  • Cervini-Plá, María
  • Ramos, Xavier
  • Ignacio Silva, José

Abstract

We study wage effects of two important elements of non-wage labour costs: firing costs and payroll taxes. We exploit a reform that introduced substantial reduction in these two provisions for unemployed workers aged less than 30 and over 45years who got a permanent job. A matching model with heterogeneous workers predicts positive wage effects of reducing firing costs but ambiguous wage effects of reducing payroll taxes, for both new entrant and incumbent workers. Difference-in-differences estimates and simulation of the model show positive wage effects for both new entrant and incumbent workers. The reduction in firing costs accounts for up to half of the overall wage increase for new entrants but only 10% for incumbents.

Suggested Citation

  • Cervini-Plá, María & Ramos, Xavier & Ignacio Silva, José, 2014. "Wage effects of non-wage labour costs," European Economic Review, Elsevier, vol. 72(C), pages 113-137.
  • Handle: RePEc:eee:eecrev:v:72:y:2014:i:c:p:113-137
    DOI: 10.1016/j.euroecorev.2014.09.005
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    Cited by:

    1. Marco Leonardi & Giovanni Pica, 2013. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 123(12), pages 1236-1278, December.
    2. Cervini-Plá, María & Ramos, Xavier & Ignacio Silva, José, 2014. "Wage effects of non-wage labour costs," European Economic Review, Elsevier, vol. 72(C), pages 113-137.
    3. Hallberg, Daniel, 2011. "Is Early Retirement Encouraged by the Employer?: Labor-Demend Effects of Age-Related Collective Fees," Arbetsrapport 2011:6, Institute for Futures Studies.
    4. Federico Cingano & Marco Leonardi & Julián Messina & Giovanni Pica, 2016. "Employment Protection Legislation, Capital Investment and Access to Credit: Evidence from Italy," Economic Journal, Royal Economic Society, vol. 126(595), pages 1798-1822, September.
    5. Leonardi, Marco & Pica, Giovanni, 2007. "Employment protection legislation and wages," Working Paper Series 778, European Central Bank.
    6. Pedro S. Martins, 2016. "Do wages increase when severance pay drops? Not in recessions," Working Papers 77, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.

    More about this item

    Keywords

    Dismissal costs; Payroll tax; Evaluation of labour market reforms; Difference-in-difference; Matching model;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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