Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/36916
Authors: 
Plá, María Cervini
Ramos, Xavier
Silva, José Ignacio
Year of Publication: 
2010
Series/Report no.: 
Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 4882
Abstract: 
We study short- and long-term wage effects of two important elements of non-wage labour costs: firing costs and payroll taxes. We exploit a reform that introduced substantial reduction in these two provisions for unemployed workers aged less than thirty and over forty five years. Theoretical insights are gained with a matching model with heterogeneous workers, which predicts an ambiguous effect on wages: firing costs are expected to increase wages, because they increase the bargaining power of workers, while the effect of payroll taxes is negative. Difference-in-differences estimates, which account for the endogeneity of the treatment status, suggest that decreased firing costs and payroll taxes have a positive overall short-term effect on wages - and also on unemployment. We find larger effects for older than for younger workers and for men than for women. Calibration and simulation of the model shows that about fifty percent of the predicted cumulative increase on wages takes place during the first year of the reform. Our simulations also show that the increase in wages is mostly due to the reduction in payroll taxes, while the overall effect of firing costs is nil because direct and indirect effects of firing costs offset each other.
Subjects: 
Dismissal costs
payroll tax
evaluation of labour market reforms
difference-in-difference
matching model
Spain
JEL: 
C23
D31
J31
Document Type: 
Working Paper

Files in This Item:
File
Size
295.18 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.