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Labour Tax Reform, The Good Jobs and the Bad Jobs

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  • Henrik Jacobsen Kleven
  • Peter Birch Sørensen

Abstract

We analyse recent proposals to shift the tax burden away from low-paid labour, assuming a dual labour market where the 'good' high-paying jobs are rationed. A shift in the tax burden from low-paid to high-paid workers has an ambiguous effect on the level of aggregate employment while the allocation of aggregate employment is likely to be further distorted. Even if the tax reform raises total employment, economic efficiency may be reduced because labour is reallocated from high-productive to low-productive jobs. Opportunities for on--the--job search have important implications for the policy effects. When these opportunities are small, the tax reform is more likely to raise employment and welfare.

Suggested Citation

  • Henrik Jacobsen Kleven & Peter Birch Sørensen, "undated". "Labour Tax Reform, The Good Jobs and the Bad Jobs," EPRU Working Paper Series 99-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:epruwp:99-01
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    References listed on IDEAS

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    Cited by:

    1. Kjell Erik Lommerud & Bjørn Sandvik & Odd Rune Straume, 2004. "Good Jobs, Bad Jobs and Redistribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 703-720, December.

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