Accounting for Labor Gaps

60 Pages Posted: 7 Mar 2016

See all articles by François Langot

François Langot

University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP); Université du Maine - Groupe d' Analyse des Itineraires et Niveaux Salariaux (GAINS); IZA Institute of Labor Economics

Alessandra Pizzo

Banque de France; Université Paris I Panthéon-Sorbonne

Date Written: March 2016

Abstract

In this paper we develop a balanced growth model with labor supply and search and matching frictions in the labor market, to study the impact of economic policy variables on the two margins which constitute the (total) labor input: the extensive margin (the rate of employment) and the intensive margin (the hours worked per worker). We show that the dynamics of taxes primarily have an impact on hours worked, while labor market institutions have a significant influence on the rate of employment. However, our findings emphasize that there is an interaction between the two margins. The model is tested on four countries (US, France, Germany and the UK), which have experienced different tax and labor market dynamics since the sixties. Using this structural approach, we can then perform counterfactual experiments about the evolution of the policy variables, and compare the implications of policy changes in terms of production as well as average welfare.

Keywords: Taxes, labor market institutions, hours, employment, labor market search

JEL Classification: E20, E60, J22, J60

Suggested Citation

Langot, Francois and Pizzo, Alessandra, Accounting for Labor Gaps (March 2016). Banque de France Working Paper No. 584. Available at SSRN: https://ssrn.com/abstract=2740960 or http://dx.doi.org/10.2139/ssrn.2740960

Francois Langot (Contact Author)

University of Angers - Centre d'Etudes Prospectives d'Economie Mathematique Appliquees a la Planification (CEPREMAP) ( email )

Ecole Normale Superieure
48 boulevard Jourdan
75014 Paris
France

Université du Maine - Groupe d' Analyse des Itineraires et Niveaux Salariaux (GAINS) ( email )

72085 Le Mans Cedex 9
France

IZA Institute of Labor Economics

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

Alessandra Pizzo

Banque de France ( email )

Paris
France

Université Paris I Panthéon-Sorbonne

17, rue de la Sorbonne
Paris, IL 75005
France

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