Labor Market Institutions and the Employment-Productivity Trade-Off: A Wage Posting Approach

41 Pages Posted: 25 Oct 2004

See all articles by Arnaud Chéron

Arnaud Chéron

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)

Jean-Olivier Hairault

Université Paris I Pantheon-Sorbonne; IZA Institute of Labor Economics

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

Date Written: October 2004

Abstract

This paper analyzes the implications of labor market institutions and policies on the employment-labor productivity trade-off. We consider an equilibrium search model with wage posting and specific human capital investment where unemployment and the distribution of both wages and productivity are endogenous. By means of simulations of this model estimated on French data, we show that the minimum wage allows a high production level to be reached by inducing increased training investment, even if its optimal level is weaker. Considering the payroll tax subsidies implemented to lower the labor cost without removing the minimum wage legislation, we show that this policy has been welfare improving, and has been relatively well managed by spreading subsidies over a large range of wages, and not only at the minimum wage level.

Keywords: employment, productivity, wage posting, labor costs

JEL Classification: C51, J24, J31, J38

Suggested Citation

Cheron, Arnaud and Hairault, Jean-Olivier and Langot, Francois, Labor Market Institutions and the Employment-Productivity Trade-Off: A Wage Posting Approach (October 2004). IZA Discussion Paper No. 1364. Available at SSRN: https://ssrn.com/abstract=609941

Arnaud Cheron

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)

72085 Le Mans Cedex 9
France

Jean-Olivier Hairault (Contact Author)

Université Paris I Pantheon-Sorbonne ( email )

12, place du Panthéon
Paris, IL
France

IZA Institute of Labor Economics

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

Francois Langot

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

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