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Payroll Taxation, Unemployment and Skill Formation

Author

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  • Bergstrom, P.

Abstract

The issue of lowering or restructuring payroll taxes in order to relieve the situation for the unemployed, and in particular unskilled workers, is a topical question on the political agenda across the European countries. This paper examines the potential effects of altered payroll taxes on unemployment by using a general equilibrium model with wage bargaining and two groups of labor: skilled and unskilled. The results within the framework of the paper are not very encouraging, though. Differentiated or generally lowered payroll taxes cannot be expected to provide relief for the unemployed unskilled, or to have any major impact on overall unemployment. However, increasing the progressiveness of the payroll tax could induce positive effects through wage moderation. This policy is however likely to have adverse effects on skill formation, a problem which is addressed by modelling individuals' choices of education explicitly.

Suggested Citation

  • Bergstrom, P., 1997. "Payroll Taxation, Unemployment and Skill Formation," Papers 1997-16, Uppsala - Working Paper Series.
  • Handle: RePEc:fth:uppaal:1997-16
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    References listed on IDEAS

    as
    1. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters,in: The Economics of Information and Uncertainty, pages 233-258 National Bureau of Economic Research, Inc.
    2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
    3. Dale T. Mortensen, 1988. "Equilibrium Wage Distrihutions: A Synthesis," Discussion Papers 811, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    5. Peter Diamond, 1985. "Search Theory," Working papers 389, Massachusetts Institute of Technology (MIT), Department of Economics.
      • Julio Rotemberg & Garth Saloner, 1986. "Price Leadership," Working papers 412, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Ellingsen, Tore & Rosen, ├ůsa, 1994. "Skill or Luck? Search Frictions and Wage Differentials," SSE/EFI Working Paper Series in Economics and Finance 1, Stockholm School of Economics.
    7. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
    8. repec:fth:harver:1517 is not listed on IDEAS
    9. Albrecht, James W & Axell, Bo, 1984. "An Equilibrium Model of Search Unemployment," Journal of Political Economy, University of Chicago Press, vol. 92(5), pages 824-840, October.
    10. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    11. Kevin Lang, 1991. "Persistent Wage Dispersion and Involuntary Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 106(1), pages 181-202.
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    More about this item

    Keywords

    TAXATION ; HUMAN CAPITAL ; TRADE UNIONS;

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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