The Effects of Labour Tax Progression Under Nash Wage Bargaining and Flexible Outsourcing

20 Pages Posted: 5 Jun 2008

See all articles by Erkki Koskela

Erkki Koskela

University of Helsinki - Department of Political and Economic Studies; CESifo (Center for Economic Studies and Ifo Institute); Bank of Finland - Research Department; IZA Institute of Labor Economics

Abstract

This paper studies in the presence of flexible outsourcing the effects of outsourcing costs, productivity of outsourcing, wage tax and tax exemption in an imperfectly competitive labour markets when labour unions and firms negotiate wages and the impacts of labour tax progression on domestic wage setting and employment. The wage elasticity of domestic labour demand is higher than in the case of strategic outsourcing and a decreasing function of the outsourcing cost, an increasing function both of the productivity of outsourcing and of the wage rate. With sufficiently strong (weak) labour market imperfections a lower outsourcing cost has a wage-moderating (wage-increasing) effect. Finally, increasing the degree of tax progression, to keep the relative tax burden per worker constant, has a wage-moderating effect and a positive effect on domestic employment and a negative effect on outsourcing.

Keywords: outsourcing, wage negotiation, labour tax progression, employment

JEL Classification: H22, J41, J51

Suggested Citation

Koskela, Erkki, The Effects of Labour Tax Progression Under Nash Wage Bargaining and Flexible Outsourcing. , Vol. , pp. -, . Available at SSRN: https://ssrn.com/abstract=1139871 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Erkki Koskela (Contact Author)

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland
+358 9 191 8894 (Phone)
+358 9 191 8877 (Fax)

HOME PAGE: http://www.cesifo.de/servlet/page?_pageid=56&_dad=portal30&_schema=PORTAL30&pa_id=7298

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Bank of Finland - Research Department ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
28
Abstract Views
379
PlumX Metrics