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Tax Wedges, Unemployment Benefits and Labour Market Outcomes in the New EU Members

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Abstract

There has been a widely accepted belief that certain labor market institutions, including high taxation and generous benefits, can lead to low employment and/or high unemployment. To what extent do such priors about tax wedges and unemployment benefits apply to the new members of the EU? Principal Component Analysis (PCA) suggests the new members share similar characteristics to each other and should be grouped separately from the rest of Europe. There are statistically significant differences in the medians of unemployment benefits and the labor market outcomes of the less productive workers, but insignificant differences in primeage outcomes and tax wedges. Within the new members, our non-parametric analysis finds tax wedges and the duration of benefits (not the replacement ratio) are associated with poor labor market outcomes, but the evidence is weak.

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  • Alberto Behar, 2009. "Tax Wedges, Unemployment Benefits and Labour Market Outcomes in the New EU Members," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 069-092, March.
    • Handle: RePEc:fau:aucocz:au2009_069
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    2. Ana Grdoviæ Gnip & Iva Tomic, 2010. "How hard does the tax bite hurt? Croatian vs. European worker," Financial Theory and Practice, Institute of Public Finance, vol. 34(2), pages 109-142.
    3. Anna Zasova, 2011. "Labour market institutions: an obstacle or support to Latvian labour market recovery?," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 5-24, July.
    4. Hazans, Mihails, 2011. "What Explains Prevalence of Informal Employment in European Countries: The Role of Labor Institutions, Governance, Immigrants, and Growth," IZA Discussion Papers 5872, Institute of Labor Economics (IZA).
    5. Lehmann, Hartmut & Muravyev, Alexander, 2009. "How Important Are Labor Market Institutions for Labor Market Performance in Transition Countries?," IZA Discussion Papers 4673, Institute of Labor Economics (IZA).
    6. H. Lehmann & A. Muravyev, 2010. "Labor market institutions and labor market performance: what can we learn from transition countries?," Working Papers 714, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Predrag Trpeski & Biljana Tashevska, 2012. "Labour Tax Wedge In The Republic Of Macedonia - Trends And International Comparison," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(14), pages 1-24.
    8. Ms. Anna Kochanova & Carlos Caceres, 2012. "Country Stress Events: Does Governance Matter?," IMF Working Papers 2012/116, International Monetary Fund.
    9. Emin Efecan Aktaş, 2023. "How Tax Wedge of Low and Upper-income Households Affects Income Distribution: Findings from OECD Countries," Prague Economic Papers, Prague University of Economics and Business, vol. 2023(3), pages 246-272.
    10. Carlos Caceres & D. Filiz Unsal, 2013. "Sovereign Spreads and Contagion Risks in Asia," Asian Economic Journal, East Asian Economic Association, vol. 27(3), pages 219-243, September.
    11. Daniel Němec, 2013. "Investigating Differences Between the Czech and Slovak Labour Market Using a Small DSGE Model with Search and Matching Frictions," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 7(1), pages 021-041, March.
    12. Alexei Izyumov, 2010. "Human Costs of Post-communist Transition: Public Policies and Private Response," Review of Social Economy, Taylor & Francis Journals, vol. 68(1), pages 93-125.
    13. Primož Dolenc & Suzana Laporšek, 2012. "Taxing wages and sustainable labour market performance: empirical evidence from OECD and EU countries," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 4(3), pages 234-253.
    14. Bashevska, Marija, 2014. "Политиките На Пазарот На Труд И Сиромаштијата Во Македонија, 2008 - 2013 [Labour market, employment policies and poverty in R. Macedonia, 2008 - 2013]," MPRA Paper 57768, University Library of Munich, Germany.
    15. Primoz Dolenc & Suzana Laporsek, 2012. "Labour Taxation and Its Impact on Employment Growth," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 10(3 (Fall)), pages 301-318.
    16. Primož Dolenc & Suzana Laporšek, 2010. "Tax Wedge on Labour and its Effect on Employment Growth in the European Union," Prague Economic Papers, Prague University of Economics and Business, vol. 2010(4), pages 344-358.

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    More about this item

    Keywords

    Labour market institutions; principal component analysis;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • P27 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Performance and Prospects

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