IDEAS home Printed from https://ideas.repec.org/p/hub/wpecon/201125.html
   My bibliography  Save this paper

The effect of labour taxes on labour demand: a comparison between Belgium and neighbouring countries

Author

Listed:
  • Laenen, Wout
  • Moons, Cindy

    () (Hogeschool-Universiteit Brussel (HUB), Belgium)

  • Persyn, Damiaan

    () (LICOS and VIVES, KULeuven, Faculty of Business and Economics, Leuven, Belgium)

Abstract

This study examines the evolution of labour costs and taxes in Belgium and neighbouring countries. We try to clarify the common issues in the current debate concerning labour costs and labour demand in Belgium and neighbouring countries and investigate the influence of labour costs on employment by using macroeconomic OECD data. We conclude that the tax wedge in Belgium is one of the highest of all OECD countries. Labour costs in Belgium rose at a moderate tempo, but labour productivity evolved less favourably compared with neighbouring countries. Belgian unit labour costs, considered as an indicator of competitiveness, evolved unfavourably. By using a dynamic error correction model we find a statistically significant but limited negative relation between labour costs and employment. A decrease in labour costs of 10% results in an increase of employment of only 1.3%, which indicates a strongly inelastic labour demand. In contrast to studies based on microeconomic data, which find generally higher wage elasticities, on the basis of this study no decisive elements can be found to question the rationale of the current wage indexation mechanism.

Suggested Citation

  • Laenen, Wout & Moons, Cindy & Persyn, Damiaan, 2011. "The effect of labour taxes on labour demand: a comparison between Belgium and neighbouring countries," Working Papers 2011/25, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  • Handle: RePEc:hub:wpecon:201125
    as

    Download full text from publisher

    File URL: https://lirias.hubrussel.be/bitstream/123456789/5158/1/11HRP25.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Hamermesh, Daniel S & Pfann, Gerard A, 1996. "Turnover and the Dynamics of Labour Demand," Economica, London School of Economics and Political Science, vol. 63(251), pages 359-367, August.
    2. Sneessens, Henri R & Dreze, Jacques H, 1986. "A Discussion of Belgian Unemployment, Combining Traditional Concepts and Disequilibrium Econometrics," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages 89-119, Supplemen.
    3. European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
    4. Yannick L'Horty & Christophe Rault, 2005. "The Impact of Growth, Labour Cost and Working Time on Employment: Lessons from the French Experience," LABOUR, CEIS, vol. 19(3), pages 595-620, September.
    5. Naastepad, C. W. M. & Kleinknecht, Alfred, 2004. "The Dutch productivity slowdown: the culprit at last?," Structural Change and Economic Dynamics, Elsevier, vol. 15(2), pages 137-163, June.
    6. Stock, James H, 1987. "Asymptotic Properties of Least Squares Estimators of Cointegrating Vectors," Econometrica, Econometric Society, vol. 55(5), pages 1035-1056, September.
    7. European Commission, 2009. "Taxation trends in the European Union: 2009 edition," Taxation trends 2009, Directorate General Taxation and Customs Union, European Commission.
    8. European Commission, 2011. "Taxation trends in the European Union: 2011 edition," Taxation trends 2011, Directorate General Taxation and Customs Union, European Commission.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    economic history; ECSC; European Integration; regional concentration;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hub:wpecon:201125. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sabine Janssens). General contact details of provider: http://edirc.repec.org/data/emhubbe.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.