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Indicators of unemployment and low-wage traps (Marginal effective tax rates on labour)

  • Giuseppe Carone

    (European Commission)

  • Aino Salomaki

    (European Commission)

  • Herwig Immervoll


  • Dominique Paturot


This paper presents results of an on-going joint European Commission / OECD project, aimed at monitoring the direct influence of tax and benefit instruments on household incomes. Indicators of financial work incentives are needed for identifying any undesired influences of taxes and social transfers on people’s work decisions. Marginal effective tax rates (METRs) are calculated in order to show what part of a change in earnings is “taxed away” by the combined operation of taxes, social security contributions (SSCs), and any withdrawal of earnings related social benefits. Three different types of METRs are calculated in order to measure so-called low-wage,unemployment and inactivity traps, that is situations where incentives to work are low. The results allow the identification of countries and family types that face little financial incentive to increase work effort or to take up a job.

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Paper provided by EconWPA in its series Labor and Demography with number 0409007.

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Length: 105 pages
Date of creation: 15 Sep 2004
Date of revision:
Handle: RePEc:wpa:wuwpla:0409007
Note: Type of Document - pdf; pages: 105
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  1. Herwig Immervoll & Cathal O’Donoghue, 2003. "Employment Transitions in 13 European Countries. Levels, Distributions and Determining Factors of Net Replacement Rates," CESifo Working Paper Series 1091, CESifo Group Munich.
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  3. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, July.
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  5. Berger, Frederic & Borsenberger, Monique & Immervoll, Herwig & Lumen, Julie & Scholtus, Bertrand & de Vos, Klaas, 2001. "The Impact of Tax-Benefit Systems on Low-Income Households in the Benelux Countries. A Simulation Approach Using Synthetic Datasets," EUROMOD Working Papers EM3/01, EUROMOD at the Institute for Social and Economic Research.
  6. G. Carone & A. Salom�ki, 2001. "Reforms in tax-benefit systems in order to increase emplyoment incentives in the EU," European Economy - Economic Papers 160, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  7. Olympia Bover & Manuel Arellano & Samuel Bentolila, 2002. "Unemployment Duration, Benefit Duration and the Business Cycle," Economic Journal, Royal Economic Society, vol. 112(479), pages 223-265, April.
  8. Lori G. Kletzer, 1998. "Job Displacement," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 115-136, Winter.
  9. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  10. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
  11. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
  12. Herwig Immervoll, 2003. "The Distribution Of Average And Marginal Effective Tax Rates In European Union Member States," Public Economics 0302005, EconWPA.
  13. Atkinson, Anthony B & Micklewright, John, 1991. "Unemployment Compensation and Labor Market Transitions: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 29(4), pages 1679-1727, December.
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