Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/36258
Authors: 
Koskela, Erkki
Year of Publication: 
2009
Series/Report no.: 
IZA Discussion Papers 4544
Abstract: 
What are the impacts of labor tax reform on wage setting and employment to keep the relative tax burden per low-skilled and high-skilled workers constant in the case of heterogenous domestic labor markets, i.e. imperfect competition in low-skilled labor and perfect competition in high-skilled labor in the presence of outsourcing? A higher degree of tax progression by raising the wage tax and the tax exemption for the low-skilled workers will decrease the wage rate and increase labour demand of low-skilled workers, whereas it will decrease (increase) employment of high-skilled workers in CES utility function when the elasticity of substitution between consumption and leisure is higher (lower) than one. A higher degree of wage tax progression for the high-skilled worker will have no effect on the high-skilled wage in the presence of CES and C-D utility function so this will have no total employment effects.
Subjects: 
Flexible outsourcing
dual labor market
impacts of labour taxation
JEL: 
E24
H22
J21
J31
J51
Document Type: 
Working Paper

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