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Employment and Deadweight Loss Effects of Observed Non-Wage Labor Costs

Author

Listed:
  • Silvio Rendon

    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

  • Giovanna Aguilar

    (Universidad Catolica del Peru)

Abstract

To assess the employment effects of labor costs it is crucial to have reliable estimates of the labor cost elasticity of labor demand. Using a matched firm-worker dataset, we estimate a long run unconditional labor demand function, exploiting information on workers to correct for endogeneity in the determination of wages. We evaluate the employment and deadweight loss effects of observed employers' contributions imposed by labor laws (health insurance, training, and taxes) as well as of observed workers' deductions (social security, and income tax). We find that non-wage labor costs reduce employment by 17% for white-collars and by 53% for blue-collars, with associated deadweight losses of 10% and 35% of total contributions, respectively. Since most firms undercomply with mandated employers' and workers contributions, we find that full compliance would imply employment losses of 4% for white-collars and 12% for blue-collars, with respective associated deadweight losses of 2% and 6%.

Suggested Citation

  • Silvio Rendon & Giovanna Aguilar, 2007. "Employment and Deadweight Loss Effects of Observed Non-Wage Labor Costs," Working Papers 0704, Centro de Investigacion Economica, ITAM.
    • Handle: RePEc:cie:wpaper:0704
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    References listed on IDEAS

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    Cited by:

    1. Lichter, Andreas & Peichl, Andreas & Siegloch, Sebastian, 2015. "The own-wage elasticity of labor demand: A meta-regression analysis," European Economic Review, Elsevier, vol. 80(C), pages 94-119.
    2. Aguilar, Giovanna & Rendon, Si­lvio, 2008. "Matching bias in labor demand estimation," Economics Letters, Elsevier, vol. 100(2), pages 297-299, August.
    3. Christian Westermeier & Anika Rasner & Markus M. Grabka, 2012. "The Prospects of the Baby Boomers: Methodological Challenges in Projecting the Lives of an Aging Cohort," SOEPpapers on Multidisciplinary Panel Data Research 440, DIW Berlin, The German Socio-Economic Panel (SOEP).

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    More about this item

    Keywords

    Employment; Deadweight Loss; Job Creation; Labor Costs; Labor Law;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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