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The labour market and fiscal impact of labour tax reductions: the case of reduction of employers' social security contributions under a wage norm regime with automatic price indexing of wages
This paper investigates the possible labour market and fiscal impacts of labour tax reductions in a typically Belgian setting, i.e. a wage norm regime with automatic price indexing of wages. We consider reductions in employers' social security contributions and fiscal compensation through value added or production taxes. Reductions in employers' social security contributions can only have significant employment effects if they effectively reduce labour costs. These reductions are only partly self-financing, and the cost per job created is high. The remaining negative impact on the government budget should be compensated through an alternative means of financing this expenditure, since not-compensating for the budgetary loss is not a realistic option in the long run. For this purpose, various financing schemes can be envisaged, but an increase in value added tax and the introduction of a tax on production (mimicking environmental taxes affecting firms' production costs) are the two possibilities considered in this paper. The alternative financing mechanisms destroy some of the positive employment effects of the initial reductions. However, on balance the combined measures can create some employment without worsening the government budget balance. The reaction of wages to the reduction in employers' social security contributions and to the fiscal compensation measures proves crucial. The more the initial reductions in employers' contributions are used to finance higher gross wages, and the more the inflationary effects of fiscal compensation measures are passed on in wages, the less positive the impact on employment will be. This means that little job creation is to be expected without a special co-ordination effort between all labour market players. Labour tax reductions are by no means a substitute for other labour market reforms.
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INTER-INDUSTRY WAGE DIFFERENTIALS: HOW MUCH DOES RENT SHARING MATTER?*: Industry Wages and Rent Sharing
In: The Manchester School, Band 79, Heft 4, S. 691-717
Wage Structure Effects of International Trade: Evidence from a Small Open Economy
In: ECB Working Paper No. 1325
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Understanding Sectoral Differences in Downward Real Wage Rigidity: Workforce Composition, Institutions, Technology and Competition
In: ECB Working Paper No. 1006
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Inter-industry Wage Differentials: How Much Does Rent Sharing Matter?
In: ECB Working Paper No. 1103
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Rent-Sharing and the Cyclicality of Wage Differentials
In: IZA Discussion Paper No. 3844
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Unemployment Risk and Over-Indebtedness: A Micro-Econometric Perspective
In: IZA Discussion Paper No. 9572
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Wage Structure Effects of International Trade: Evidence from a Small Open Economy
In: IZA Discussion Paper No. 5597
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A Bigger House at the Cost of an Empty Fridge? The Effect of Households' Indebtedness on Their Consumption: Micro-Evidence Using Belgian Hfcs Data
In: IZA Discussion Paper No. 14193
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Institutional features of wage bargaining in 23 European countries, the US and Japan
In: Working paper 154
In: Research
Why Firms Avoid Cutting Wages: Survey Evidence from European Firms
In: Bank of Greece Working Paper No. 173
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Why firms avoid cutting wages: Survey evidence from European firms
The rarity with which firms reduce nominal wages has been frequently observed, even in the face of considerable negative economic shocks. This paper uses a unique survey of fourteen European countries to ask firms directly about the incidence of wage cuts and to assess the relevance of a range of potential reasons for why they avoid cutting wages. Concerns about the retention of productive staff and a lowering of morale and effort were reported as key reasons for downward wage rigidity across all countries and firm types. Restrictions created by collective bargaining were found to be an important consideration for firms in euro area countries but were one of the lowest ranked obstacles in non-euro area countries. The paper examines how firm characteristics and collective bargaining institutions affect the relevance of each of the common explanations put forward for the infrequency of wage cuts.
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Why Firms Avoid Cutting Wages: Survey Evidence from European Firms
In: National Bank of Belgium Working Paper No. 251
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