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Explaining labor wedge trends: An equilibrium search approach

Author

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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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    4. 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.
    5. 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.
    6. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    7. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, April.
    8. Costain, James S. & Reiter, Michael, 2008. "Business cycles, unemployment insurance, and the calibration of matching models," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1120-1155, April.
    9. repec:hal:journl:halshs-00178465 is not listed on IDEAS
    10. 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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    More about this item

    Keywords

    Aggregate hours of work; intensive and extensive margins; labor market institutions; labor wedge; matching model;

    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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