Bargaining Frictions, Labor Income Taxation and Economic Performance

CIRPEE Working Paper 08-03

38 Pages Posted: 17 Apr 2008

See all articles by Stéphane Auray

Stéphane Auray

CREST-Ensai

Samuel Danthine

École Nationale de la Statistique et de l'Analyse de l'Information (ENSAI)

Date Written: April 2008

Abstract

A matching model with labor/leisure choice and bargaining frictions is used to explain (i) differences in GDP per hour and GDP per capita, (ii) differences in employment and hours worked (per capita and per worker), (iii) differences in the proportion of part-time work across countries. The model predicts that the higher the level of rigidity in wages and hours the lower are GDP per capital, employment, part-time work and hours worked, but the higher is GDP per hour. In addition, it predicts that a country with a high level of rigidity in wages and hours and a high level of income taxation has higher GDP per hour and lower GDP per capita, employment and part-time work than a country with less rigidity and a lower level of taxation. This is due mostly to a lower level of employment. In contrast, a country with low levels of rigidity in hours and in wage setting but with a higher level of income taxation has a lower GDP per capita and a higher GDP per hour than the economy with low rigidity and low taxation. In this configuration, the level of employment is similar in both economies but the share of part-time work is larger. The model accounts well qualitatively for the facts, and a plausible calibration accounts well qualitatively for the differences between the US, French and Dutch economies.

Keywords: Models of search and matching, bargaining frictions, economic performance, labor market institutions, part-time jobs, labor market rigidities

JEL Classification: E24, J22, J30, J41, J50, J64

Suggested Citation

Auray, Stéphane and Danthine, Samuel, Bargaining Frictions, Labor Income Taxation and Economic Performance (April 2008). CIRPEE Working Paper 08-03. Available at SSRN: https://ssrn.com/abstract=1121862 or http://dx.doi.org/10.2139/ssrn.1121862

Stéphane Auray (Contact Author)

CREST-Ensai ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Samuel Danthine

École Nationale de la Statistique et de l'Analyse de l'Information (ENSAI) ( email )

Rennes Métropole - Campus de Ker Lann
Rue Blaise Pascal
BP 37203- 35172 BRUZ Cedex
France

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