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Explaining labor wedge trends: An equilibrium search approach

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  • Coralia A. Quintero Rojas
  • François Langot

Abstract

In this paper, we present a search and matching model of the labor market and use this as a device to explain the long-run variation in the aggregate hours worked in several OECD countries over the period 1980-2013. The model distinguishes between hours worked per employee (intensive margin) and the employment rate (extensive margin) and includes a tax/benefit system. This allows us to assess the impact of the observed time-varying heterogeneity of taxes, unemployment benefits, and workers’ bargaining power on the two margins. Our method is based on an accounting procedure. Once it has been calibrated, we find that, for the ten countries of the sample, our search economy is able to explain the patterns of the two margins of aggregate hours worked over the 1980-2013 period, when it includes the cross-country heterogeneity of the labor market institutions.

Suggested Citation

  • Coralia A. Quintero Rojas & François Langot, 2016. "Explaining labor wedge trends: An equilibrium search approach," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 13(1), pages 3-35, June.
    • Handle: RePEc:liu:liucej:v:13:y:2016:i:1:p:3-35
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    References listed on IDEAS

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    1. Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2008. "Quantifying The Laffer Curve On The Continued Activity Tax In A Dynastic Framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 755-797, August.
    2. Richard Rogerson, 2006. "Understanding Differences in Hours Worked," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 365-409, July.
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    5. Andrea Bassanini & Romain Duval, 2006. "Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions," OECD Economics Department Working Papers 486, OECD Publishing.
    6. Ohanian, Lee & Raffo, Andrea & Rogerson, Richard, 2008. "Long-term changes in labor supply and taxes: Evidence from OECD countries, 1956-2004," Journal of Monetary Economics, Elsevier, vol. 55(8), pages 1353-1362, November.
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    8. Pedro Portugal & Olivier Blanchard, 2001. "What Hides Behind an Unemployment Rate: Comparing Portuguese and U.S. Labor Markets," American Economic Review, American Economic Association, vol. 91(1), pages 187-207, March.
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    10. Coralia Quintero-Rojas, 2009. "Hours Worked: Explaining Cross-Country Differences through the Effects of Tax/Benefit Systems on the Employment Rate," Annals of Economics and Statistics, GENES, issue 95-96, pages 79-102.
    11. Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2277-2292, November.
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    14. Jean-Olivier Hairault & François Langot & Thepthida Sopraseuth, 2008. "Quantifying The Laffer Curve On The Continued Activity Tax In A Dynastic Framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 755-797, August.
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    Cited by:

    1. Langot, François & Pizzo, Alessandra, 2019. "Accounting for labor gaps," European Economic Review, Elsevier, vol. 118(C), pages 312-347.
    2. Zouhair Ait Benhamou, 2018. "A Steeper slope: the Laffer Tax Curve in Developing and Emerging Economies," Post-Print hal-02977714, HAL.
    3. Zouhair Aït Benhamou, 2018. "A Steeper slope: the Laffer Tax Curve in Developing and Emerging Economies," Working Papers hal-04141686, HAL.

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    More about this item

    Keywords

    Aggregate hours of work; intensive and extensive margins; labor market institutions; labor wedge; matching model;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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