Subsidizing Extra Jobs: Promoting Employment by Taming the Unions
We study the subsidization of extra jobs in a general equilibrium framework. While the previous literature focuses on symmetric marginal employment subsidies where firms are rewarded when they increase employment but punished when they reduce their workforce, we consider an asymmetric scheme that only rewards employment expansion. This changes the incidence substantially. In the asymmetric case without punishment, it becomes less costly for firms to lay off a substantial fraction of their workforce when trade unions raise wages. This tames the unions, which causes wage moderation and raises aggregate employment and welfare. For moderate subsidy rates, all unions prefer to restrain their wage claims. At sufficiently high subsidy rates, labor market conditions improve so much that some unions enforce higher wages and let their firms shrink. This displacement of firms might have a negative impact on employment and welfare.
|Date of creation:||Oct 2007|
|Contact details of provider:|| Postal: Universitätsplatz 2, Gebäude W und I, 39106 Magdeburg|
Phone: (0391) 67-18 584
Fax: (0391) 67-12 120
Web page: http://www.ww.uni-magdeburg.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nickell, Stephen & Layard, Richard, 1999.
"Labor market institutions and economic performance,"
Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 46, pages 3029-3084
- Nickell, S. & Layard, R., 1997. "Labour Market Institutions and Economic Performance," Papers 23, Centre for Economic Performance & Institute of Economics.
- Richard Layard & Stephen Nickell, 1998. "Labour Market Institutions and Economic Performance," CEP Discussion Papers dp0407, Centre for Economic Performance, LSE.
- Oswald, Andrew J, 1984. "Three Theorems on Inflation Taxes and Marginal Employment Subsidies," Economic Journal, Royal Economic Society, vol. 94(375), pages 599-611, September.
- Oswald, Andrew, 1982. "Three Theorems on Inflation Taxes and Marginal Employment Subsidies," The Warwick Economics Research Paper Series (TWERPS) 220, University of Warwick, Department of Economics.
- Andrew J. Oswald, 1983. "Three Theorems on Inflation Taxes and Marginal Employment Subsidies," Working Papers 547, Princeton University, Department of Economics, Industrial Relations Section..
- Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 879-907.
- Olivier Blanchard & Francesco Giavazzi, "undated". "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Olivier Blanchard & Francesco Giavazzi, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," NBER Working Papers 8120, National Bureau of Economic Research, Inc.
- Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers 2713, C.E.P.R. Discussion Papers.
- Layard, P R G & Nickell, S J, 1980. "The Case for Subsidising Extra Jobs," Economic Journal, Royal Economic Society, vol. 90(357), pages 51-73, March.
- Hart, Robert A, 1989. "The Employment and Hours Effects of a Marginal Employment Subsidy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(4), pages 385-395, November.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Andreas Knabe & Ronnie Schöb & Joachim Weimann, 2006. "Marginal Employment Subsidization: A New Concept and a Reappraisal," CESifo Working Paper Series 1707, CESifo Group Munich.
- George F. Kopits, 1978. "Wage Subsidies and Employment: An Analysis of the French Experience (Les subventions des salaires et le niveau d'emploi: analyze de l'expÃ©rience franÃ§aise) (Subsidios salariales y el nivel de empleo," IMF Staff Papers, Palgrave Macmillan, vol. 25(3), pages 494-527, September.
- Pierre Cahuc & AndrÃ© Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, July.
- Pierre Cahuc & Stéphane Carcillo & André Zylberberg, 2014. "Labor Economics," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01076752, HAL.
- Pierre Cahuc & Stéphane Carcillo & André Zylberberg & William Mccuaig, 2014. "Labor Economics," Sciences Po publications info:hdl:2441/1oclgdahv98, Sciences Po.
- Bishop, John & Haveman, Robert, 1979. "Selective Employment Subsidies: Can Okun's Law be Repealed?," American Economic Review, American Economic Association, vol. 69(2), pages 124-130, May.
- Giuseppe Carone & Herwig Immervoll & Dominique Paturot & Aino Salomäki, 2004. "Indicators of Unemployment and Low-Wage Traps: Marginal Effective Tax Rates on Employment Incomes," OECD Social, Employment and Migration Working Papers 18, OECD Publishing.
- Heijdra, Ben J., 2017. "Foundations of Modern Macroeconomics," OUP Catalogue, Oxford University Press, edition 3, number 9780198784135.
When requesting a correction, please mention this item's handle: RePEc:mag:wpaper:07020. 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: (Guido Henkel)
If references are entirely missing, you can add them using this form.