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The Wedge

  • Goerke, Laszlo


    (IAAEU, University of Trier)

It is often argued that the quantity which is traded on the market is independent of the side of the market which is taxed. However, this assertion need not hold, especially in imperfectly competitive markets like that for labour. Taking an efficiency wage economy as an example, it is shown that the legal incidence of social security contributions will affect the economic incidence if unemployment compensation is subject to social security contributions. Since this is the case in numerous OECD countries, the wedge between producer costs and the net wage might be an inappropriate device for measuring the impact of social security contributions on wages and employment.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 71.

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Length: 17 pages
Date of creation: Nov 1999
Date of revision:
Publication status: published in: Manchester School, 2000, 68(5), 608-623; see IZA Reprints 59/00
Handle: RePEc:iza:izadps:dp71
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  1. Albrecht, James W. & Vroman, Susan B., 1996. "A note on the long-run properties of the shirking model," Labour Economics, Elsevier, vol. 3(2), pages 189-195, September.
  2. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
  3. Manning, Alan, 1990. "Imperfect Competition, Multiple Equilibria and Unemployment Policy," Economic Journal, Royal Economic Society, vol. 100(400), pages 151-62, Supplemen.
  4. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
  5. Alan S. Blinder, 1988. "The Challenge of High Unemployment," NBER Working Papers 2489, National Bureau of Economic Research, Inc.
  6. Goerke, Laszlo, 1999. "Value-added Tax versus Social Security Contributions," IZA Discussion Papers 55, Institute for the Study of Labor (IZA).
  7. Bean, C R & Layard, P R G & Nickell, S J, 1986. "The Rise in Unemployment: A Multi-country Study," Economica, London School of Economics and Political Science, vol. 53(210(S)), pages S1-22, Supplemen.
  8. Pisauro, Giuseppe, 1991. "The effect of taxes on labour in efficiency wage models," Journal of Public Economics, Elsevier, vol. 46(3), pages 329-345, December.
  9. Koskela, E. & Schob, R., 1998. "Does the Composition of Wage and Payroll Taxes Matter Under Nash Bargaining," University of Helsinki, Department of Economics 443, Department of Economics.
  10. Michael Hoel, 1990. "Efficiency wages and income taxes," Journal of Economics, Springer, vol. 51(1), pages 89-99, February.
  11. Solow, Robert M., 1979. "Another possible source of wage stickiness," Journal of Macroeconomics, Elsevier, vol. 1(1), pages 79-82.
  12. Goerke, Laszlo, 1999. "Efficiency Wages and Taxes," Australian Economic Papers, Wiley Blackwell, vol. 38(2), pages 131-42, June.
  13. Rasmussen, Bo Sandemann, 1998. "Long run effects of employment and payroll taxes in an efficiency wage model," Economics Letters, Elsevier, vol. 58(2), pages 245-253, February.
  14. Pemberton, James, 1992. "Taxation and Wage Bargaining," The Economic Record, The Economic Society of Australia, vol. 68(203), pages 318-27, December.
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