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Bargaining Frictions and Hours Worked

  • Auray, Stéphane

    ()

    (CREST)

  • Danthine, Samuel

    ()

    (University of Québec at Montréal)

A matching model with labor/leisure choice and bargaining frictions is used to explain (i) differences in GDP per hour and GDP per capita, (ii) differences in employment, (iii) differences in the proportion of part-time work across countries. The model predicts that the higher the level of rigidity in wages and hours the lower are GDP per capita, employment, part-time work and hours worked, but the higher is GDP per hours worked. In addition, it predicts that a country with a high level of rigidity in wages and hours and a high level of income taxation has higher GDP per hour and lower GDP per capita than a country with less rigidity and a lower level of taxation. This is due mostly to a lower level of employment. In contrast, a country with low levels of rigidity in hour and in wage setting but with a higher level of income taxation has a lower GDP per capita and a higher GDP per hour than the economy with low rigidity and low taxation, because while the level of employment is similar in both economies, the share of part-time work is larger.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1722.

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Length: 36 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1722
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  1. Steve Nickell & Jan van Ours, 2000. "The Netherlands and the United Kingdom: a European unemployment miracle?," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 135-180, 04.
  2. Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 469-479, 04/05.
  3. Danthine, Samuel, 2005. "Two-Sided Search, Heterogeneous Skills and Labor Market Performance," IZA Discussion Papers 1572, Institute for the Study of Labor (IZA).
  4. Michael J. Handel, 2000. "Trends in Direct Measures of Job Skill Requirements," Macroeconomics 0004048, EconWPA.
  5. 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.
  6. Michael J. Handel, 2000. "Trends in Direct Measures of Job Skill Requirements," Economics Working Paper Archive wp_301, Levy Economics Institute.
  7. Robert E. Hall, 2003. "Modern Theory of Unemployment Fluctuations: Empirics and Policy Applications," American Economic Review, American Economic Association, vol. 93(2), pages 145-150, May.
  8. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report 321, Federal Reserve Bank of Minneapolis.
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