IDEAS home Printed from https://ideas.repec.org/p/shr/wpaper/09-20.html
   My bibliography  Save this paper

Bargaining Frictions, Labor Income Taxation, and Economic Performance

Author

Listed:
  • Stéphane Auray

    (Université Lille 3 (GREMARS), Université de Sherbrooke (GREDI) and CIRPÉE)

  • Samuel Danthine

    (Universite du Quebec a Montreal, Universidad de Malaga and CIRPEE)

Abstract

This paper is an attempt to explain differences in economic performance between a subset of OECD countries. We classify countries in terms of their degree of rigidity in the labor market, and use a matching model with labor/leisure choice, bargaining frictions, and labor income taxation to capture these rigidity differences. Added flexibility improves economic performance in different ways depending on whether income taxation is high or low. Feeding income taxation rates estimated from the countries at hand, we find that the model is able to replicate the observed rigidity levels. The model is also shown to reproduce well cross-country differences in non-employment population ratios and the share of part-time jobs.

Suggested Citation

  • Stéphane Auray & Samuel Danthine, 2009. "Bargaining Frictions, Labor Income Taxation, and Economic Performance," Cahiers de recherche 09-20, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    • Handle: RePEc:shr:wpaper:09-20
    as

    Download full text from publisher

    File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-0920.pdf
    File Function: First version, 2009
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Richard Rogerson, 2006. "Understanding Differences in Hours Worked," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(3), pages 365-409, July.
    2. Stephen Nickell, 2003. "Employment and Taxes," CESifo Working Paper Series 1109, CESifo.
    3. Edward C. Prescott, 2004. "Why do Americans work so much more than Europeans?," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 28(Jul), pages 2-13.
    4. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1339-1382.
    5. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    6. Johannes F. Schmieder & Till von Wachter, 2010. "Does Wage Persistence Matter for Employment Fluctuations? Evidence from Displaced Workers," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 1-21, July.
    7. Christopher A. Pissarides, 2007. "Unemployment And Hours Of Work: The North Atlantic Divide Revisited," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(1), pages 1-36, February.
    8. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
    9. Steve Nickell & Jan van Ours, 2000. "The Netherlands and the United Kingdom: a European unemployment miracle?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(30), pages 136-180.
    10. Mark Gertler & Antonella Trigari, 2009. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 38-86, February.
    11. Blázquez, Maite & Jansen, Marcel, 2008. "Search, mismatch and unemployment," European Economic Review, Elsevier, vol. 52(3), pages 498-526, April.
    12. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    13. Victor Aguirregabiria & Cesar Alonso-Borrego, 2014. "Labor Contracts And Flexibility: Evidence From A Labor Market Reform In Spain," Economic Inquiry, Western Economic Association International, vol. 52(2), pages 930-957, April.
    14. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    15. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    16. Ortega, Javier, 2003. "Working-Time Regulation, Firm Heterogeneity, and Efficiency," CEPR Discussion Papers 3736, C.E.P.R. Discussion Papers.
    17. Lars Ljungqvist & Thomas J. Sargent, 2007. "Do Taxes Explain European Employment? Indivisible Labor, Human Capital, Lotteries, and Savings," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 181-246, National Bureau of Economic Research, Inc.
    18. Danthine, Samuel, 2005. "Two-Sided Search, Heterogeneous Skills and Labor Market Performance," IZA Discussion Papers 1572, Institute of Labor Economics (IZA).
    19. HU Yongjian & TIJDENS Kea, 2003. "Choices for part-time jobs and the impacts on the wage differentials. A comparative study for Great Britain and the Netherlands," IRISS Working Paper Series 2003-05, IRISS at CEPS/INSTEAD.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Albertini, Julien & Langot, François & Sopraseuth, Thepthida, 2023. "A Tale of Two Countries: Two Stories of Job Polarization," CEPREMAP Working Papers (Docweb) 2307, CEPREMAP.
    2. Julien Albertini & Fran{c{c}}ois Langot & Thepthida Sopraseuth, 2024. "A Tale of Two Countries: Two Stories of Job Polarization," Annals of Economics and Statistics, GENES, issue 154, pages 77-138.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Ayşegül Şahin, 2010. "Aggregate labor market outcomes: The roles of choice and chance," Quantitative Economics, Econometric Society, vol. 1(1), pages 97-127, July.
    2. Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2277-2292, November.
    3. Jose Emilio Boscá & Rafael Domenech & Javier Ferri, 2008. "Tax Reforms and Labour-market Performance: An Evaluation for Spain using REMS," Working Papers 0804, International Economics Institute, University of Valencia.
    4. Pascal Michaillat, 2012. "Do Matching Frictions Explain Unemployment? Not in Bad Times," American Economic Review, American Economic Association, vol. 102(4), pages 1721-1750, June.
    5. D’Erasmo, P. & Mendoza, E.G. & Zhang, J., 2016. "What is a Sustainable Public Debt?," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 2493-2597, Elsevier.
    6. Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2011. "A three state model of worker flows in general equilibrium," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1107-1133, May.
    7. Ramey, Garey, 2008. "Exogenous vs. Endogenous Separation," University of California at San Diego, Economics Working Paper Series qt0qb196qd, Department of Economics, UC San Diego.
    8. Arnaud Chéron & Jean-Olivier Hairault & François Langot, 2013. "Life-Cycle Equilibrium Unemployment," Journal of Labor Economics, University of Chicago Press, vol. 31(4), pages 843-882.
    9. Andreas I. Mueller, 2017. "Separations, Sorting, and Cyclical Unemployment," American Economic Review, American Economic Association, vol. 107(7), pages 2081-2107, July.
    10. Langot, François & Pizzo, Alessandra, 2019. "Accounting for labor gaps," European Economic Review, Elsevier, vol. 118(C), pages 312-347.
    11. Chakraborty, Indraneel & Holter, Hans A. & Stepanchuk, Serhiy, 2015. "Marriage stability, taxation and aggregate labor supply in the U.S. vs. Europe," Journal of Monetary Economics, Elsevier, vol. 72(C), pages 1-20.
    12. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    13. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Ayşegül Şahin, 2017. "Gross Worker Flows over the Business Cycle," American Economic Review, American Economic Association, vol. 107(11), pages 3447-3476, November.
    14. Fève, Patrick & Matheron, Julien & Sahuc, Jean-Guillaume, 2012. "The Laffer Curve in an Incomplete-Market Economy," TSE Working Papers 12-288, Toulouse School of Economics (TSE), revised Jul 2013.
    15. Garey Ramey, 2008. "Exogenous vs. Endogenous Separation," 2008 Meeting Papers 466, Society for Economic Dynamics.
    16. Luksic, Jan, 2020. "The extensive macro labor supply elasticity: Integrating taxes and expenditures," European Economic Review, Elsevier, vol. 121(C).
    17. Sila, Urban, 2009. "Can family-support policies help explain differences in working hours across countries?," LSE Research Online Documents on Economics 28684, London School of Economics and Political Science, LSE Library.
    18. Yicheng Wang, 2015. "Can Wage Dynamics in Long-term Employment Relationships Help Mitigate Financial Shocks?," 2015 Meeting Papers 1189, Society for Economic Dynamics.
    19. Auray, Stéphane & Danthine, Samuel, 2005. "Bargaining Frictions and Hours Worked," IZA Discussion Papers 1722, Institute of Labor Economics (IZA).
    20. Federico Di Pace & Matthias Hertweck, 2019. "Labor Market Frictions, Monetary Policy, and Durable Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 274-304, April.

    More about this item

    Keywords

    models of search and matching; bargaining frictions; economic performance; labor market institutions; part-time jobs; labor market rigidities;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:shr:wpaper:09-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jean-François Rouillard (email available below). General contact details of provider: https://edirc.repec.org/data/deushca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.