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Labor force heterogeneity: implications for the relation between aggregate volatility and government size

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  • Alexandre Janiak
  • Paulo Santos Monteiro

Abstract

There is substantial evidence of a negative correlation between government size and output volatility. We put forward the hypothesis that large governments stabilize output fluctuations because in economies with high tax rates the share of total market hours supplied by demographic groups exhibiting a more volatile labor supply is lower. This hypothesis is motivated by the observation that employment volatility is larger for young workers than for prime aged workers, and that the share of hours worked by the young workers is lower in countries with high tax rates. This paper illustrates these empirical facts and assesses in a calibrated model their quantitative importance for the relation between government size and macroeconomic stability.

Suggested Citation

  • Alexandre Janiak & Paulo Santos Monteiro, 2010. "Labor force heterogeneity: implications for the relation between aggregate volatility and government size," Documentos de Trabajo 272, Centro de Economía Aplicada, Universidad de Chile.
    • Handle: RePEc:edj:ceauch:272
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    References listed on IDEAS

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    1. Alejandra Mizala & Pilar Romaguera & Sebastian Gallegos, 2010. "Public-Private Wage Gap In Latin America (1999-2007): A Matching Approach," Documentos de Trabajo 268, Centro de Economía Aplicada, Universidad de Chile.
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    Cited by:

    1. Sekyu Choi & Alexandre Janiak & Benjamín Villena‐Roldán, 2015. "Unemployment, Participation and Worker Flows Over the Life‐Cycle," Economic Journal, Royal Economic Society, vol. 125(589), pages 1705-1733, December.
    2. Florencia Amábile & Rómulo A. Chumacero, 2023. "Should I stay or should I go?: the economic incentives of intergenerational taxes and transfers in Uruguay," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(2), pages 493-524, April.

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